Correlation Between Consolidated Edison and Korea Electric

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

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

Diversification Opportunities for Consolidated Edison and Korea Electric

-0.32

Correlation Coefficient

Consolidated Edison  Korea Electric

Very good diversification

The 3 months correlation between Consolidated and Korea is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Consolidated Edison 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 Consolidated Edison 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 Consolidated Edison 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 Consolidated Edison i.e., Consolidated Edison and Korea Electric go up and down completely randomly.

Pair Corralation between Consolidated Edison and Korea Electric

Allowing for the 90-day total investment horizon Consolidated Edison is expected to under-perform the Korea Electric. But the stock apears to be less risky and, when comparing its historical volatility, Consolidated Edison is 2.2 times less risky than Korea Electric. The stock trades about -0.01 of its potential returns per unit of risk. The Korea Electric Power is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  814.00  in Korea Electric Power on August 31, 2024 and sell it today you would earn a total of  58.00  from holding Korea Electric Power or generate 7.13% return on investment over 90 days.

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

Consolidated Edison  vs.  Korea Electric Power

Consolidated Edison

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Consolidated Edison has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Consolidated Edison is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Korea Electric Power

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Korea Electric Power are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady technical and fundamental indicators, Korea Electric may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Consolidated Edison and Korea Electric

The main advantage of trading using opposite Consolidated Edison and Korea Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Consolidated Edison 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 Consolidated Edison 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.