Correlation Between LG Energy and TES Co

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

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

Diversification Opportunities for LG Energy and TES Co

0.3

Correlation Coefficient

LG Energy  TES Co

Weak diversification

The 3 months correlation between 373220 and TES is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding LG Energy Solution and TES Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TES Co and LG Energy 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 Energy Solution are associated (or correlated) with TES Co. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TES Co has no effect on the direction of LG Energy i.e., LG Energy and TES Co go up and down completely randomly.

Pair Corralation between LG Energy and TES Co

Assuming the 90 days trading horizon LG Energy Solution is expected to under-perform the TES Co. In addition to that, LG Energy is 1.19 times more volatile than TES Co. It trades about -0.08 of its total potential returns per unit of risk. TES Co is currently generating about -0.03 per unit of volatility. If you would invest  1,668,013  in TES Co on September 30, 2024 and sell it today you would lose (113,013) from holding TES Co or give up 6.78% of portfolio value over 90 days.

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

LG Energy Solution  vs.  TES Co

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 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.

TES Co

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TES Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, TES Co 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 Energy and TES Co

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

The idea behind LG Energy Solution and TES 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.