Correlation Between KB Financial and National Grid

Can any of the company-specific risk be diversified away by investing in both KB Financial and National Grid 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 KB Financial and National Grid into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between KB Financial Group and National Grid plc, you can compare the effects of market volatilities on KB Financial and National Grid 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 KB Financial with a short position of National Grid. Check out your portfolio center. Please also check ongoing floating volatility patterns of KB Financial and National Grid.

Diversification Opportunities for KB Financial and National Grid

-0.15

Correlation Coefficient

KB Financial  National Grid

Good diversification

The 3 months correlation between KB Financial and National is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding KB Financial Group and National Grid plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Grid plc and KB Financial 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 KB Financial Group are associated (or correlated) with National Grid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Grid plc has no effect on the direction of KB Financial i.e., KB Financial and National Grid go up and down completely randomly.

Pair Corralation between KB Financial and National Grid

Allowing for the 90-day total investment horizon KB Financial Group is expected to under-perform the National Grid. But the stock apears to be less risky and, when comparing its historical volatility, KB Financial Group is 1.36 times less risky than National Grid. The stock trades about -0.12 of its potential returns per unit of risk. The National Grid plc is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,226  in National Grid plc on September 13, 2024 and sell it today you would lose (37.00) from holding National Grid plc or give up 3.02% of portfolio value over 90 days.

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

KB Financial Group  vs.  National Grid plc

KB Financial Group

Risk-Adjusted Performance

0 of 100

Weak

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

National Grid plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Grid plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with KB Financial and National Grid

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

The idea behind KB Financial Group and National Grid plc 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.