Correlation Between Doosan Heavy and LG Energy

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

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

Diversification Opportunities for Doosan Heavy and LG Energy

0.14

Correlation Coefficient

Doosan Heavy  LG Energy

Average diversification

The 3 months correlation between Doosan and 373220 is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Doosan Heavy Ind 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 Doosan Heavy 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 Doosan Heavy Ind 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 Doosan Heavy i.e., Doosan Heavy and LG Energy go up and down completely randomly.

Pair Corralation between Doosan Heavy and LG Energy

Assuming the 90 days trading horizon Doosan Heavy Ind is expected to generate 1.0 times more return on investment than LG Energy. However, Doosan Heavy is 1.0 times more volatile than LG Energy Solution. It trades about 0.12 of its potential returns per unit of risk. LG Energy Solution is currently generating about 0.0 per unit of risk. If you would invest  1,789,000  in Doosan Heavy Ind on August 31, 2024 and sell it today you would earn a total of  356,000  from holding Doosan Heavy Ind or generate 19.9% return on investment over 90 days.

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

Doosan Heavy Ind  vs.  LG Energy Solution

Doosan Heavy Ind

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Doosan Heavy Ind are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Doosan Heavy 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 Doosan Heavy and LG Energy

The main advantage of trading using opposite Doosan Heavy and LG Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Doosan Heavy 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 Doosan Heavy Ind 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.