Correlation Between Dongnam Chemical and LG Energy

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

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

Diversification Opportunities for Dongnam Chemical and LG Energy

0.39

Correlation Coefficient

Dongnam Chemical  LG Energy

Weak diversification

The 3 months correlation between Dongnam and 373220 is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Dongnam Chemical Co 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 Dongnam Chemical 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 Dongnam Chemical Co 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 Dongnam Chemical i.e., Dongnam Chemical and LG Energy go up and down completely randomly.

Pair Corralation between Dongnam Chemical and LG Energy

Assuming the 90 days trading horizon Dongnam Chemical is expected to generate 12.7 times less return on investment than LG Energy. But when comparing it to its historical volatility, Dongnam Chemical Co is 2.13 times less risky than LG Energy. It trades about 0.01 of its potential returns per unit of risk. LG Energy Solution is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  32,600,000  in LG Energy Solution on September 21, 2024 and sell it today you would earn a total of  4,600,000  from holding LG Energy Solution or generate 14.11% return on investment over 90 days.

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

Dongnam Chemical Co  vs.  LG Energy Solution

Dongnam Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

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

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 Dongnam Chemical and LG Energy

The main advantage of trading using opposite Dongnam Chemical and LG Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dongnam Chemical 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 Dongnam Chemical Co 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.