Correlation Between Korea Electric and INSUN Environmental

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

Diversification Opportunities for Korea Electric and INSUN Environmental

-0.51

Correlation Coefficient

Korea Electric  INSUN Environmental

Excellent diversification

The 3 months correlation between Korea and INSUN is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Korea Electric Power and INSUN Environmental New in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INSUN Environmental New 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 INSUN Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INSUN Environmental New has no effect on the direction of Korea Electric i.e., Korea Electric and INSUN Environmental go up and down completely randomly.

Pair Corralation between Korea Electric and INSUN Environmental

Assuming the 90 days trading horizon Korea Electric Power is expected to generate 1.27 times more return on investment than INSUN Environmental. However, Korea Electric is 1.27 times more volatile than INSUN Environmental New. It trades about 0.09 of its potential returns per unit of risk. INSUN Environmental New is currently generating about -0.11 per unit of risk. If you would invest  2,033,443  in Korea Electric Power on December 24, 2024 and sell it today you would earn a total of  176,557  from holding Korea Electric Power or generate 8.68% return on investment over 90 days.

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

Korea Electric Power  vs.  INSUN Environmental New

Korea Electric Power

Risk-Adjusted Performance

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 may actually be approaching a critical reversion point that can send shares even higher in April 2025.

INSUN Environmental New

Risk-Adjusted Performance

Very Weak

Over the last 90 days INSUN Environmental New 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 INSUN Environmental

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

The idea behind Korea Electric Power and INSUN Environmental New 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.