Correlation Between Kia Corp and LG Energy

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

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

Diversification Opportunities for Kia Corp and LG Energy

-0.42

Correlation Coefficient

Kia Corp  LG Energy

Very good diversification

The 3 months correlation between Kia and 373220 is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Kia Corp and LG Energy Solution in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LG Energy Solution and Kia Corp 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 Kia Corp are associated (or correlated) with LG Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LG Energy Solution has no effect on the direction of Kia Corp i.e., Kia Corp and LG Energy go up and down completely randomly.

Pair Corralation between Kia Corp and LG Energy

Assuming the 90 days trading horizon Kia Corp is expected to under-perform the LG Energy. But the stock apears to be less risky and, when comparing its historical volatility, Kia Corp is 1.16 times less risky than LG Energy. The stock trades about -0.03 of its potential returns per unit of risk. The LG Energy Solution is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  37,300,000  in LG Energy Solution on July 6, 2024 and sell it today you would earn a total of  3,050,000  from holding LG Energy Solution or generate 8.18% return on investment over 90 days.

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

Kia Corp  vs.  LG Energy Solution

Kia Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kia Corp 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 November 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

LG Energy Solution

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in LG Energy Solution are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, LG Energy sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kia Corp and LG Energy

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

The idea behind Kia Corp and LG Energy Solution 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.