Correlation Between LG Energy and Cube Entertainment

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

Diversification Opportunities for LG Energy and Cube Entertainment

0.45

Correlation Coefficient

LG Energy  Cube Entertainment

Very weak diversification

The 3 months correlation between 373220 and Cube is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding LG Energy Solution and Cube Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cube Entertainment 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 Cube Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cube Entertainment has no effect on the direction of LG Energy i.e., LG Energy and Cube Entertainment go up and down completely randomly.

Pair Corralation between LG Energy and Cube Entertainment

Assuming the 90 days trading horizon LG Energy Solution is expected to under-perform the Cube Entertainment. But the stock apears to be less risky and, when comparing its historical volatility, LG Energy Solution is 1.34 times less risky than Cube Entertainment. The stock trades about -0.12 of its potential returns per unit of risk. The Cube Entertainment is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  1,717,000  in Cube Entertainment on February 26, 2024 and sell it today you would lose (214,000) from holding Cube Entertainment or give up 12.46% of portfolio value over 90 days.

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

LG Energy Solution  vs.  Cube Entertainment

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 June 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Cube Entertainment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cube Entertainment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with LG Energy and Cube Entertainment

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

The idea behind LG Energy Solution and Cube Entertainment 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.