Correlation Between LG Display and Xiaomi Corp

Can any of the company-specific risk be diversified away by investing in both LG Display and Xiaomi Corp at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining LG Display and Xiaomi Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between LG Display Co and Xiaomi Corp ADR, you can compare the effects of market volatilities on LG Display and Xiaomi Corp and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in LG Display with a short position of Xiaomi Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of LG Display and Xiaomi Corp.

Diversification Opportunities for LG Display and Xiaomi Corp

0.37

Correlation Coefficient

LG Display  Xiaomi Corp

Weak diversification

The 3 months correlation between LPL and Xiaomi is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding LG Display Co and Xiaomi Corp ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xiaomi Corp ADR and LG Display is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on LG Display Co are associated (or correlated) with Xiaomi Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xiaomi Corp ADR has no effect on the direction of LG Display i.e., LG Display and Xiaomi Corp go up and down completely randomly.

Pair Corralation between LG Display and Xiaomi Corp

Considering the 90-day investment horizon LG Display is expected to generate 9.6 times less return on investment than Xiaomi Corp. But when comparing it to its historical volatility, LG Display Co is 2.13 times less risky than Xiaomi Corp. It trades about 0.04 of its potential returns per unit of risk. Xiaomi Corp ADR is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  2,206  in Xiaomi Corp ADR on December 28, 2024 and sell it today you would earn a total of  1,126  from holding Xiaomi Corp ADR or generate 51.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

LG Display Co  vs.  Xiaomi Corp ADR

LG Display

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in LG Display Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, LG Display is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Xiaomi Corp ADR

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xiaomi Corp ADR are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile fundamental indicators, Xiaomi Corp showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LG Display and Xiaomi Corp

The main advantage of trading using opposite LG Display and Xiaomi Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LG Display position performs unexpectedly, Xiaomi Corp can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Xiaomi Corp will offset losses from the drop in Xiaomi Corp's long position.

The idea behind LG Display Co and Xiaomi Corp ADR pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.