Correlation Between Korea Electric and CJ Cheiljedang

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

Diversification Opportunities for Korea Electric and CJ Cheiljedang

-0.37

Correlation Coefficient

Korea Electric  CJ Cheiljedang

Very good diversification

The 3 months correlation between Korea and 097950 is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Korea Electric Power and CJ Cheiljedang in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CJ Cheiljedang 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 CJ Cheiljedang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CJ Cheiljedang has no effect on the direction of Korea Electric i.e., Korea Electric and CJ Cheiljedang go up and down completely randomly.

Pair Corralation between Korea Electric and CJ Cheiljedang

Assuming the 90 days trading horizon Korea Electric Power is expected to generate 1.07 times more return on investment than CJ Cheiljedang. However, Korea Electric is 1.07 times more volatile than CJ Cheiljedang. It trades about 0.02 of its potential returns per unit of risk. CJ Cheiljedang is currently generating about -0.01 per unit of risk. If you would invest  1,824,000  in Korea Electric Power on October 4, 2024 and sell it today you would earn a total of  132,000  from holding Korea Electric Power or generate 7.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.69%
Values	Daily Returns

Korea Electric Power  vs.  CJ Cheiljedang

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. 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.

CJ Cheiljedang

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CJ Cheiljedang has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Korea Electric and CJ Cheiljedang

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

The idea behind Korea Electric Power and CJ Cheiljedang 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.