Correlation Between Korea Electric and Entergy

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

Diversification Opportunities for Korea Electric and Entergy

0.45

Correlation Coefficient

Korea Electric  Entergy

Very weak diversification

The 3 months correlation between Korea and Entergy is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Korea Electric Power and Entergy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Entergy 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 Entergy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Entergy has no effect on the direction of Korea Electric i.e., Korea Electric and Entergy go up and down completely randomly.

Pair Corralation between Korea Electric and Entergy

Considering the 90-day investment horizon Korea Electric is expected to generate 11.03 times less return on investment than Entergy. In addition to that, Korea Electric is 1.02 times more volatile than Entergy. It trades about 0.01 of its total potential returns per unit of risk. Entergy is currently generating about 0.16 per unit of volatility. If you would invest  12,133  in Entergy on September 5, 2024 and sell it today you would earn a total of  3,032  from holding Entergy or generate 24.99% return on investment over 90 days.

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

Korea Electric Power  vs.  Entergy

Korea Electric Power

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Korea Electric Power are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Entergy

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Entergy are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Entergy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Korea Electric and Entergy

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

The idea behind Korea Electric Power and Entergy 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.