Correlation Between LG Electronics and KG Eco

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

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

Diversification Opportunities for LG Electronics and KG Eco

0.86

Correlation Coefficient

LG Electronics  KG Eco

Very poor diversification

The 3 months correlation between 066570 and 151860 is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding LG Electronics and KG Eco Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KG Eco Technology and LG Electronics 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 Electronics are associated (or correlated) with KG Eco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KG Eco Technology has no effect on the direction of LG Electronics i.e., LG Electronics and KG Eco go up and down completely randomly.

Pair Corralation between LG Electronics and KG Eco

Assuming the 90 days trading horizon LG Electronics is expected to generate 0.58 times more return on investment than KG Eco. However, LG Electronics is 1.74 times less risky than KG Eco. It trades about -0.01 of its potential returns per unit of risk. KG Eco Technology is currently generating about -0.06 per unit of risk. If you would invest  9,737,219  in LG Electronics on September 12, 2024 and sell it today you would lose (1,307,219) from holding LG Electronics or give up 13.42% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.69%
Values	Daily Returns

LG Electronics  vs.  KG Eco Technology

LG Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LG Electronics 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.

KG Eco Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KG Eco Technology 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 Electronics and KG Eco

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

The idea behind LG Electronics and KG Eco Technology 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.

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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.