Correlation Between LG Display and NVIDIA

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

Diversification Opportunities for LG Display and NVIDIA

-0.68

Correlation Coefficient

LG Display  NVIDIA

Excellent diversification

The 3 months correlation between LPL and NVIDIA is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding LG Display Co and NVIDIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NVIDIA 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 NVIDIA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NVIDIA has no effect on the direction of LG Display i.e., LG Display and NVIDIA go up and down completely randomly.

Pair Corralation between LG Display and NVIDIA

Considering the 90-day investment horizon LG Display is expected to generate 1.08 times less return on investment than NVIDIA. But when comparing it to its historical volatility, LG Display Co is 2.01 times less risky than NVIDIA. It trades about 0.11 of its potential returns per unit of risk. NVIDIA is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  85,905  in NVIDIA on February 4, 2024 and sell it today you would earn a total of  2,884  from holding NVIDIA or generate 3.36% return on investment over 90 days.

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

LG Display Co  vs.  NVIDIA

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 quite persistent basic indicators, LG Display is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

NVIDIA

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental indicators, NVIDIA sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LG Display and NVIDIA

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

The idea behind LG Display Co and NVIDIA 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.