Correlation Between LG Energy and Samsung SDI

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

Diversification Opportunities for LG Energy and Samsung SDI

0.9

Correlation Coefficient

LG Energy  Samsung SDI

Almost no diversification

The 3 months correlation between 373220 and Samsung is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding LG Energy Solution and Samsung SDI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Samsung SDI 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 Samsung SDI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Samsung SDI has no effect on the direction of LG Energy i.e., LG Energy and Samsung SDI go up and down completely randomly.

Pair Corralation between LG Energy and Samsung SDI

Assuming the 90 days trading horizon LG Energy Solution is expected to generate 1.04 times more return on investment than Samsung SDI. However, LG Energy is 1.04 times more volatile than Samsung SDI. It trades about -0.08 of its potential returns per unit of risk. Samsung SDI is currently generating about -0.13 per unit of risk. If you would invest  39,150,000  in LG Energy Solution on April 7, 2024 and sell it today you would lose (3,400,000) from holding LG Energy Solution or give up 8.68% of portfolio value over 90 days.

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

LG Energy Solution  vs.  Samsung SDI

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 somewhat strong basic indicators, LG Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Samsung SDI

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Samsung SDI 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 Samsung SDI

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

The idea behind LG Energy Solution and Samsung SDI 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.