Correlation Between LG Display and Wearable Devices

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

Diversification Opportunities for LG Display and Wearable Devices

0.26

Correlation Coefficient

LG Display  Wearable Devices

Modest diversification

The 3 months correlation between LPL and Wearable is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding LG Display Co and Wearable Devices in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wearable Devices 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 Wearable Devices. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wearable Devices has no effect on the direction of LG Display i.e., LG Display and Wearable Devices go up and down completely randomly.

Pair Corralation between LG Display and Wearable Devices

Considering the 90-day investment horizon LG Display Co is expected to generate 0.15 times more return on investment than Wearable Devices. However, LG Display Co is 6.82 times less risky than Wearable Devices. It trades about -0.12 of its potential returns per unit of risk. Wearable Devices is currently generating about -0.06 per unit of risk. If you would invest  420.00  in LG Display Co on January 30, 2024 and sell it today you would lose (25.00) from holding LG Display Co or give up 5.95% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	71.43%
Values	Daily Returns

LG Display Co  vs.  Wearable Devices

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 latest inconsistent performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Wearable Devices

Risk-Adjusted Performance

4 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Wearable Devices are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Wearable Devices showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LG Display and Wearable Devices

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

The idea behind LG Display Co and Wearable Devices 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.