Correlation Between LG Household and Hyundai
Can any of the company-specific risk be diversified away by investing in both LG Household and Hyundai 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 Household and Hyundai into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LG Household Healthcare and Hyundai Motor, you can compare the effects of market volatilities on LG Household and Hyundai 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 Household with a short position of Hyundai. Check out your portfolio center. Please also check ongoing floating volatility patterns of LG Household and Hyundai.
Diversification Opportunities for LG Household and Hyundai
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between 051900 and Hyundai is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding LG Household Healthcare and Hyundai Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hyundai Motor and LG Household 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 Household Healthcare are associated (or correlated) with Hyundai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hyundai Motor has no effect on the direction of LG Household i.e., LG Household and Hyundai go up and down completely randomly.
Pair Corralation between LG Household and Hyundai
Assuming the 90 days trading horizon LG Household Healthcare is expected to under-perform the Hyundai. In addition to that, LG Household is 1.24 times more volatile than Hyundai Motor. It trades about -0.02 of its total potential returns per unit of risk. Hyundai Motor is currently generating about 0.02 per unit of volatility. If you would invest 19,226,400 in Hyundai Motor on September 30, 2024 and sell it today you would earn a total of 2,273,600 from holding Hyundai Motor or generate 11.83% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
LG Household Healthcare vs. Hyundai Motor
Performance |
Timeline |
LG Household Healthcare |
Hyundai Motor |
LG Household and Hyundai Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with LG Household and Hyundai
The main advantage of trading using opposite LG Household and Hyundai positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LG Household position performs unexpectedly, Hyundai 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 Hyundai will offset losses from the drop in Hyundai's long position.LG Household vs. Wave Electronics Co | LG Household vs. Cuckoo Electronics Co | LG Household vs. Sungho Electronics Corp | LG Household vs. Okins Electronics Co |
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Check out your portfolio center.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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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