Correlation Between Korea Electric and Red Electrica

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

Diversification Opportunities for Korea Electric and Red Electrica

-0.29

Correlation Coefficient

Korea Electric  Red Electrica

Very good diversification

The 3 months correlation between Korea and Red is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Korea Electric Power and Red Electrica Corporacion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Red Electrica Corporacion 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 Red Electrica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Red Electrica Corporacion has no effect on the direction of Korea Electric i.e., Korea Electric and Red Electrica go up and down completely randomly.

Pair Corralation between Korea Electric and Red Electrica

Considering the 90-day investment horizon Korea Electric Power is expected to generate 1.99 times more return on investment than Red Electrica. However, Korea Electric is 1.99 times more volatile than Red Electrica Corporacion. It trades about -0.04 of its potential returns per unit of risk. Red Electrica Corporacion is currently generating about -0.09 per unit of risk. If you would invest  822.00  in Korea Electric Power on September 12, 2024 and sell it today you would lose (67.00) from holding Korea Electric Power or give up 8.15% of portfolio value over 90 days.

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

Korea Electric Power  vs.  Red Electrica Corporacion

Korea Electric Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Korea Electric Power has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's technical and fundamental indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Red Electrica Corporacion

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Red Electrica Corporacion has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's forward 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 Red Electrica

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

The idea behind Korea Electric Power and Red Electrica Corporacion 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.