Correlation Between Sonos and LG Display

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

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

Diversification Opportunities for Sonos and LG Display

-0.64

Correlation Coefficient

Sonos  LG Display

Excellent diversification

The 3 months correlation between Sonos and LPL is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Sonos Inc and LG Display Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LG Display and Sonos 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 Sonos Inc are associated (or correlated) with LG Display. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LG Display has no effect on the direction of Sonos i.e., Sonos and LG Display go up and down completely randomly.

Pair Corralation between Sonos and LG Display

Given the investment horizon of 90 days Sonos Inc is expected to generate 1.56 times more return on investment than LG Display. However, Sonos is 1.56 times more volatile than LG Display Co. It trades about 0.07 of its potential returns per unit of risk. LG Display Co is currently generating about -0.19 per unit of risk. If you would invest  1,306  in Sonos Inc on August 27, 2024 and sell it today you would earn a total of  43.00  from holding Sonos Inc or generate 3.29% return on investment over 90 days.

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

Sonos Inc  vs.  LG Display Co

Sonos Inc

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sonos Inc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Sonos may actually be approaching a critical reversion point that can send shares even higher in December 2024.

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 weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in December 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Sonos and LG Display

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

The idea behind Sonos Inc and LG Display Co 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.