Correlation Between Korea Electric and Consumers Energy

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

Diversification Opportunities for Korea Electric and Consumers Energy

0.64

Correlation Coefficient

Korea Electric  Consumers Energy

Poor diversification

The 3 months correlation between Korea and Consumers is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Korea Electric Power and Consumers Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consumers Energy 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 Consumers Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consumers Energy has no effect on the direction of Korea Electric i.e., Korea Electric and Consumers Energy go up and down completely randomly.

Pair Corralation between Korea Electric and Consumers Energy

Considering the 90-day investment horizon Korea Electric Power is expected to generate 1.43 times more return on investment than Consumers Energy. However, Korea Electric is 1.43 times more volatile than Consumers Energy. It trades about 0.08 of its potential returns per unit of risk. Consumers Energy is currently generating about 0.06 per unit of risk. If you would invest  681.00  in Korea Electric Power on December 30, 2024 and sell it today you would earn a total of  66.00  from holding Korea Electric Power or generate 9.69% return on investment over 90 days.

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

Korea Electric Power  vs.  Consumers Energy

Korea Electric Power

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Korea Electric Power are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical and fundamental indicators, Korea Electric may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Consumers Energy

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Consumers Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Consumers Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Korea Electric and Consumers Energy

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

The idea behind Korea Electric Power and Consumers Energy 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.