Correlation Between Duke Energy and Korea Electric

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

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

Diversification Opportunities for Duke Energy and Korea Electric

0.6

Correlation Coefficient

Duke Energy  Korea Electric

Poor diversification

The 3 months correlation between Duke and Korea is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Duke Energy 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 Duke Energy 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 Duke Energy 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 Duke Energy i.e., Duke Energy and Korea Electric go up and down completely randomly.

Pair Corralation between Duke Energy and Korea Electric

Considering the 90-day investment horizon Duke Energy is expected to under-perform the Korea Electric. But the stock apears to be less risky and, when comparing its historical volatility, Duke Energy is 2.05 times less risky than Korea Electric. The stock trades about -0.28 of its potential returns per unit of risk. The Korea Electric Power is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  735.00  in Korea Electric Power on October 10, 2024 and sell it today you would lose (30.00) from holding Korea Electric Power or give up 4.08% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

Duke Energy  vs.  Korea Electric Power

Duke Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Duke Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Duke Energy is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional 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. Even with relatively invariable technical and fundamental indicators, Korea Electric is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Duke Energy and Korea Electric

The main advantage of trading using opposite Duke Energy and Korea Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Duke Energy 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 Duke Energy 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.

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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.