Correlation Between Korea Electric and Nasmedia

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

Diversification Opportunities for Korea Electric and Nasmedia

-0.38

Correlation Coefficient

Korea Electric  Nasmedia

Very good diversification

The 3 months correlation between Korea and Nasmedia is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Korea Electric Power and Nasmedia Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nasmedia 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 Nasmedia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nasmedia has no effect on the direction of Korea Electric i.e., Korea Electric and Nasmedia go up and down completely randomly.

Pair Corralation between Korea Electric and Nasmedia

Assuming the 90 days trading horizon Korea Electric Power is expected to under-perform the Nasmedia. In addition to that, Korea Electric is 1.14 times more volatile than Nasmedia Co. It trades about -0.01 of its total potential returns per unit of risk. Nasmedia Co is currently generating about 0.05 per unit of volatility. If you would invest  1,379,473  in Nasmedia Co on November 29, 2024 and sell it today you would earn a total of  62,527  from holding Nasmedia Co or generate 4.53% return on investment over 90 days.

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

Korea Electric Power  vs.  Nasmedia Co

Korea Electric Power

Risk-Adjusted Performance

Very Weak

Over the last 90 days Korea Electric Power has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Korea Electric is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Nasmedia

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nasmedia Co are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Nasmedia is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Korea Electric and Nasmedia

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

The idea behind Korea Electric Power and Nasmedia 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.

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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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.