Correlation Between Xtrackers and LG Battery

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

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

Diversification Opportunities for Xtrackers and LG Battery

0.16

Correlation Coefficient

Xtrackers  LG Battery

Average diversification

The 3 months correlation between Xtrackers and BATE is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers II and LG Battery Value Chain in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LG Battery Value and Xtrackers 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 Xtrackers II are associated (or correlated) with LG Battery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LG Battery Value has no effect on the direction of Xtrackers i.e., Xtrackers and LG Battery go up and down completely randomly.

Pair Corralation between Xtrackers and LG Battery

Assuming the 90 days trading horizon Xtrackers is expected to generate 31.67 times less return on investment than LG Battery. But when comparing it to its historical volatility, Xtrackers II is 1.42 times less risky than LG Battery. It trades about 0.01 of its potential returns per unit of risk. LG Battery Value Chain is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,535  in LG Battery Value Chain on October 22, 2024 and sell it today you would earn a total of  171.00  from holding LG Battery Value Chain or generate 11.14% return on investment over 90 days.

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

Xtrackers II   vs.  LG Battery Value Chain

Xtrackers II

Risk-Adjusted Performance

0 of 100

Very Weak

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

LG Battery Value

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in LG Battery Value Chain are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, LG Battery may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Xtrackers and LG Battery

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

The idea behind Xtrackers II and LG Battery Value Chain 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.