Introduction: Patients with type 2 diabetes mellitus (T2DM) have an increased risk of cognitive impairment. In this study, we investigated the effect of L5—an electronegative subfraction of low-density lipoprotein cholesterol (LDL-C)—on the cognitive function of patients with T2DM. Methods: This cross-sectional study included 68 patients with T2DM: 15 with normal cognitive function, 39 with mild cognitive impairment (MCI), and 14 with Alzheimer disease (AD). Cognitive evaluation was performed using the Cognitive Abilities Screening Instrument. We developed a new method—Holo-Hilbert spectral analysis (HHSA)—for analyzing electroencephalography signals. Using HHSA, we investigated the effects of L5 on patients’ neural activity. Results: Our findings suggested that a higher percentage of L5 in LDL-C (L5%) was independently associated with increased risks of MCI and AD in patients with T2DM. A negative correlation was observed between serum L5% and cognitive performance, particularly in the concentration subdomain, in patients with MCI. HHSA revealed that an elevated serum L5% value was correlated with an increase in low-frequency neural oscillations but a reduction in high-frequency oscillations in patients with MCI. However, no correlation was observed between L5, cognitive performance, and neural activity in patients with normal cognitive function or AD. Conclusion: Our findings demonstrate L5 to be an efficient biomarker and electroencephalography/HHSA to be an innovative approach for assessing cognitive function in patients with T2DM. L5 may affect frontal lobe function, leading to concentration deficits. The correlation between L5 and cognitive impairment appears to vary depending on the stage of neurodegeneration.