Correlation Between LG Display and Daewoo Engineering

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

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

Diversification Opportunities for LG Display and Daewoo Engineering

0.72

Correlation Coefficient

LG Display  Daewoo Engineering

Poor diversification

The 3 months correlation between 034220 and Daewoo is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding LG Display and Daewoo Engineering Constructio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daewoo Engineering and LG Display 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 LG Display are associated (or correlated) with Daewoo Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daewoo Engineering has no effect on the direction of LG Display i.e., LG Display and Daewoo Engineering go up and down completely randomly.

Pair Corralation between LG Display and Daewoo Engineering

Assuming the 90 days trading horizon LG Display is expected to under-perform the Daewoo Engineering. But the stock apears to be less risky and, when comparing its historical volatility, LG Display is 1.46 times less risky than Daewoo Engineering. The stock trades about -0.17 of its potential returns per unit of risk. The Daewoo Engineering Construction is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  360,000  in Daewoo Engineering Construction on September 5, 2024 and sell it today you would earn a total of  9,500  from holding Daewoo Engineering Construction or generate 2.64% return on investment over 90 days.

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

LG Display  vs.  Daewoo Engineering Constructio

LG Display

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LG Display has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Daewoo Engineering

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with LG Display and Daewoo Engineering

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

The idea behind LG Display and Daewoo Engineering Construction 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.