Correlation Between Bohae Brewery and LG Energy

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

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

Diversification Opportunities for Bohae Brewery and LG Energy

-0.15

Correlation Coefficient

Bohae Brewery  LG Energy

Good diversification

The 3 months correlation between Bohae and 373220 is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Bohae Brewery and LG Energy Solution in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LG Energy Solution and Bohae Brewery 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 Bohae Brewery are associated (or correlated) with LG Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LG Energy Solution has no effect on the direction of Bohae Brewery i.e., Bohae Brewery and LG Energy go up and down completely randomly.

Pair Corralation between Bohae Brewery and LG Energy

Assuming the 90 days trading horizon Bohae Brewery is expected to generate 1.67 times more return on investment than LG Energy. However, Bohae Brewery is 1.67 times more volatile than LG Energy Solution. It trades about 0.06 of its potential returns per unit of risk. LG Energy Solution is currently generating about -0.02 per unit of risk. If you would invest  43,700  in Bohae Brewery on September 13, 2024 and sell it today you would earn a total of  5,500  from holding Bohae Brewery or generate 12.59% return on investment over 90 days.

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

Bohae Brewery  vs.  LG Energy Solution

Bohae Brewery

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bohae Brewery are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Bohae Brewery sustained solid returns over the last few months and may actually be approaching a breakup point.

LG Energy Solution

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LG Energy Solution has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, LG Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Bohae Brewery and LG Energy

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

The idea behind Bohae Brewery and LG Energy Solution 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.