Correlation Between Korea Electric and Endesa SA

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

Diversification Opportunities for Korea Electric and Endesa SA

0.67

Correlation Coefficient

Korea Electric  Endesa SA

Poor diversification

The 3 months correlation between Korea and Endesa is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Korea Electric Power and Endesa SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Endesa SA ADR 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 Endesa SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Endesa SA ADR has no effect on the direction of Korea Electric i.e., Korea Electric and Endesa SA go up and down completely randomly.

Pair Corralation between Korea Electric and Endesa SA

Considering the 90-day investment horizon Korea Electric is expected to generate 1.78 times less return on investment than Endesa SA. In addition to that, Korea Electric is 1.32 times more volatile than Endesa SA ADR. It trades about 0.08 of its total potential returns per unit of risk. Endesa SA ADR is currently generating about 0.2 per unit of volatility. If you would invest  1,058  in Endesa SA ADR on December 27, 2024 and sell it today you would earn a total of  204.00  from holding Endesa SA ADR or generate 19.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

Korea Electric Power  vs.  Endesa SA ADR

Korea Electric Power

Risk-Adjusted Performance

OK

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.

Endesa SA ADR

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Endesa SA ADR are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Endesa SA showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Korea Electric and Endesa SA

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

The idea behind Korea Electric Power and Endesa SA ADR 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.