Correlation Between LG Display and Mastercard

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

By analyzing existing cross correlation between LG Display Co and Mastercard, you can compare the effects of market volatilities on LG Display and Mastercard 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 Mastercard. Check out your portfolio center. Please also check ongoing floating volatility patterns of LG Display and Mastercard.

Diversification Opportunities for LG Display and Mastercard

-0.6

Correlation Coefficient

LG Display  Mastercard

Excellent diversification

The 3 months correlation between LGA and Mastercard is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding LG Display Co and Mastercard in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mastercard 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 Co are associated (or correlated) with Mastercard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mastercard has no effect on the direction of LG Display i.e., LG Display and Mastercard go up and down completely randomly.

Pair Corralation between LG Display and Mastercard

Assuming the 90 days horizon LG Display Co is expected to under-perform the Mastercard. In addition to that, LG Display is 1.45 times more volatile than Mastercard. It trades about -0.02 of its total potential returns per unit of risk. Mastercard is currently generating about 0.2 per unit of volatility. If you would invest  43,536  in Mastercard on September 4, 2024 and sell it today you would earn a total of  7,144  from holding Mastercard or generate 16.41% return on investment over 90 days.

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

LG Display Co  vs.  Mastercard

LG Display

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LG Display Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, LG Display is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Mastercard

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mastercard are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Mastercard reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LG Display and Mastercard

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

The idea behind LG Display Co and Mastercard 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.