Correlation Between Samsung Life and Korea Electric

Can any of the company-specific risk be diversified away by investing in both Samsung Life and Korea Electric 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 Samsung Life and Korea Electric into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Samsung Life Insurance and Korea Electric Power, you can compare the effects of market volatilities on Samsung Life and Korea Electric 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 Samsung Life with a short position of Korea Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Samsung Life and Korea Electric.

Diversification Opportunities for Samsung Life and Korea Electric

0.8

Correlation Coefficient

Samsung Life  Korea Electric

Very poor diversification

The 3 months correlation between Samsung and Korea is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Samsung Life Insurance and Korea Electric Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korea Electric Power and Samsung Life 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 Samsung Life Insurance are associated (or correlated) with Korea Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Korea Electric Power has no effect on the direction of Samsung Life i.e., Samsung Life and Korea Electric go up and down completely randomly.

Pair Corralation between Samsung Life and Korea Electric

Assuming the 90 days trading horizon Samsung Life Insurance is expected to generate 1.3 times more return on investment than Korea Electric. However, Samsung Life is 1.3 times more volatile than Korea Electric Power. It trades about -0.08 of its potential returns per unit of risk. Korea Electric Power is currently generating about -0.14 per unit of risk. If you would invest  10,490,000  in Samsung Life Insurance on October 7, 2024 and sell it today you would lose (1,170,000) from holding Samsung Life Insurance or give up 11.15% of portfolio value over 90 days.

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

Samsung Life Insurance  vs.  Korea Electric Power

Samsung Life Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

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

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.

Pair Trading with Samsung Life and Korea Electric

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

The idea behind Samsung Life Insurance and Korea Electric Power 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.