Correlation Between LG Household and Iljin Materials

Can any of the company-specific risk be diversified away by investing in both LG Household and Iljin Materials 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 Iljin Materials 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 Iljin Materials Co, you can compare the effects of market volatilities on LG Household and Iljin Materials 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 Iljin Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of LG Household and Iljin Materials.

Diversification Opportunities for LG Household and Iljin Materials

0.76

Correlation Coefficient

LG Household  Iljin Materials

Poor diversification

The 3 months correlation between 051900 and Iljin is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding LG Household Healthcare and Iljin Materials Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iljin Materials 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 Iljin Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Iljin Materials has no effect on the direction of LG Household i.e., LG Household and Iljin Materials go up and down completely randomly.

Pair Corralation between LG Household and Iljin Materials

Assuming the 90 days trading horizon LG Household Healthcare is expected to generate 0.76 times more return on investment than Iljin Materials. However, LG Household Healthcare is 1.31 times less risky than Iljin Materials. It trades about -0.02 of its potential returns per unit of risk. Iljin Materials Co is currently generating about -0.26 per unit of risk. If you would invest  35,000,000  in LG Household Healthcare on September 13, 2024 and sell it today you would lose (1,550,000) from holding LG Household Healthcare or give up 4.43% of portfolio value over 90 days.

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

LG Household Healthcare  vs.  Iljin Materials Co

LG Household Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

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

Iljin Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Iljin Materials Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with LG Household and Iljin Materials

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

The idea behind LG Household Healthcare and Iljin Materials Co 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.