Correlation Between Mastercard and LG Electronics

Can any of the company-specific risk be diversified away by investing in both Mastercard and LG Electronics 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 Mastercard and LG Electronics into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Mastercard and LG Electronics, you can compare the effects of market volatilities on Mastercard and LG Electronics 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 Mastercard with a short position of LG Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mastercard and LG Electronics.

Diversification Opportunities for Mastercard and LG Electronics

-0.84

Correlation Coefficient

Mastercard  LG Electronics

Pay attention - limited upside

The 3 months correlation between Mastercard and LGLG is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding Mastercard and LG Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LG Electronics and Mastercard 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 Mastercard are associated (or correlated) with LG Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LG Electronics has no effect on the direction of Mastercard i.e., Mastercard and LG Electronics go up and down completely randomly.

Pair Corralation between Mastercard and LG Electronics

Assuming the 90 days horizon Mastercard is expected to generate 0.8 times more return on investment than LG Electronics. However, Mastercard is 1.25 times less risky than LG Electronics. It trades about 0.19 of its potential returns per unit of risk. LG Electronics is currently generating about -0.08 per unit of risk. If you would invest  43,796  in Mastercard on September 2, 2024 and sell it today you would earn a total of  6,884  from holding Mastercard or generate 15.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Mastercard  vs.  LG Electronics

Mastercard

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mastercard are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Mastercard reported solid returns over the last few months and may actually be approaching a breakup point.

LG Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LG Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Mastercard and LG Electronics

The main advantage of trading using opposite Mastercard and LG Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mastercard position performs unexpectedly, LG Electronics 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 LG Electronics will offset losses from the drop in LG Electronics' long position.

The idea behind Mastercard and LG Electronics 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.

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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 Global Correlations module to find global opportunities by holding instruments from different markets.