Correlation Between Taylor Morrison and LG Display

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

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

Diversification Opportunities for Taylor Morrison and LG Display

0.38

Correlation Coefficient

Taylor Morrison  LG Display

Weak diversification

The 3 months correlation between Taylor and LGA is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Taylor Morrison Home and LG Display Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LG Display and Taylor Morrison 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 Taylor Morrison Home are associated (or correlated) with LG Display. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LG Display has no effect on the direction of Taylor Morrison i.e., Taylor Morrison and LG Display go up and down completely randomly.

Pair Corralation between Taylor Morrison and LG Display

Assuming the 90 days trading horizon Taylor Morrison Home is expected to under-perform the LG Display. But the stock apears to be less risky and, when comparing its historical volatility, Taylor Morrison Home is 1.34 times less risky than LG Display. The stock trades about -0.03 of its potential returns per unit of risk. The LG Display Co is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  300.00  in LG Display Co on December 28, 2024 and sell it today you would lose (6.00) from holding LG Display Co or give up 2.0% of portfolio value over 90 days.

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

Taylor Morrison Home  vs.  LG Display Co

Taylor Morrison Home

Risk-Adjusted Performance

Very Weak

Over the last 90 days Taylor Morrison Home has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Taylor Morrison is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

LG Display

Risk-Adjusted Performance

Very Weak

Over the last 90 days LG Display Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, LG Display is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Taylor Morrison and LG Display

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

The idea behind Taylor Morrison Home and LG Display Co 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.