Correlation Between Korea Electric and Pan Entertainment

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

Diversification Opportunities for Korea Electric and Pan Entertainment

-0.53

Correlation Coefficient

Korea Electric  Pan Entertainment

Excellent diversification

The 3 months correlation between Korea and Pan is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Korea Electric Power and Pan Entertainment Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pan Entertainment 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 Pan Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pan Entertainment has no effect on the direction of Korea Electric i.e., Korea Electric and Pan Entertainment go up and down completely randomly.

Pair Corralation between Korea Electric and Pan Entertainment

Assuming the 90 days trading horizon Korea Electric Power is expected to generate 1.34 times more return on investment than Pan Entertainment. However, Korea Electric is 1.34 times more volatile than Pan Entertainment Co. It trades about 0.1 of its potential returns per unit of risk. Pan Entertainment Co is currently generating about 0.11 per unit of risk. If you would invest  2,140,000  in Korea Electric Power on September 2, 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	Very Weak
Accuracy	100.0%
Values	Daily Returns

Korea Electric Power  vs.  Pan Entertainment 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.

Pan Entertainment

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pan Entertainment Co are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Pan Entertainment may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Korea Electric and Pan Entertainment

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

The idea behind Korea Electric Power and Pan Entertainment 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.