Correlation Between LG Energy and Samsung Biologics

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

Diversification Opportunities for LG Energy and Samsung Biologics

0.58

Correlation Coefficient

LG Energy  Samsung Biologics

Very weak diversification

The 3 months correlation between 373220 and Samsung is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding LG Energy Solution and Samsung Biologics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Samsung Biologics 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 Biologics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Samsung Biologics has no effect on the direction of LG Energy i.e., LG Energy and Samsung Biologics go up and down completely randomly.

Pair Corralation between LG Energy and Samsung Biologics

Assuming the 90 days trading horizon LG Energy Solution is expected to generate 2.09 times more return on investment than Samsung Biologics. However, LG Energy is 2.09 times more volatile than Samsung Biologics Co. It trades about -0.02 of its potential returns per unit of risk. Samsung Biologics Co is currently generating about -0.19 per unit of risk. If you would invest  39,550,000  in LG Energy Solution on January 31, 2024 and sell it today you would lose (650,000) from holding LG Energy Solution or give up 1.64% 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.  Samsung Biologics Co

LG Energy Solution

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in LG Energy Solution are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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 Biologics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Samsung Biologics Co 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 Biologics

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

The idea behind LG Energy Solution and Samsung Biologics 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.