Correlation Between Korea Electric and Hyundai

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

By analyzing existing cross correlation between Korea Electric Power and Hyundai Motor Co, you can compare the effects of market volatilities on Korea Electric and Hyundai 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 Korea Electric with a short position of Hyundai. Check out your portfolio center. Please also check ongoing floating volatility patterns of Korea Electric and Hyundai.

Diversification Opportunities for Korea Electric and Hyundai

-0.66

Correlation Coefficient

Korea Electric  Hyundai

Excellent diversification

The 3 months correlation between Korea and Hyundai is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Korea Electric Power and Hyundai Motor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hyundai Motor and Korea Electric 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 Korea Electric Power are associated (or correlated) with Hyundai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hyundai Motor has no effect on the direction of Korea Electric i.e., Korea Electric and Hyundai go up and down completely randomly.

Pair Corralation between Korea Electric and Hyundai

Assuming the 90 days trading horizon Korea Electric Power is expected to generate 1.22 times more return on investment than Hyundai. However, Korea Electric is 1.22 times more volatile than Hyundai Motor Co. It trades about 0.1 of its potential returns per unit of risk. Hyundai Motor Co is currently generating about -0.11 per unit of risk. If you would invest  2,140,000  in Korea Electric Power on September 1, 2024 and sell it today you would earn a total of  250,000  from holding Korea Electric Power or generate 11.68% return on investment over 90 days.

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

Korea Electric Power  vs.  Hyundai Motor Co

Korea Electric Power

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Korea Electric Power are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Korea Electric sustained solid returns over the last few months and may actually be approaching a breakup point.

Hyundai Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hyundai Motor 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 Korea Electric and Hyundai

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

The idea behind Korea Electric Power and Hyundai Motor 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.

Check out your portfolio center.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.