Correlation Between Korea Electric and KB Financial

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

Diversification Opportunities for Korea Electric and KB Financial

-0.46

Correlation Coefficient

Korea Electric  KB Financial

Very good diversification

The 3 months correlation between Korea and KB Financial is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Korea Electric Power and KB Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KB Financial Group 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 KB Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KB Financial Group has no effect on the direction of Korea Electric i.e., Korea Electric and KB Financial go up and down completely randomly.

Pair Corralation between Korea Electric and KB Financial

Considering the 90-day investment horizon Korea Electric Power is expected to generate 1.35 times more return on investment than KB Financial. However, Korea Electric is 1.35 times more volatile than KB Financial Group. It trades about 0.08 of its potential returns per unit of risk. KB Financial Group 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 Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Korea Electric Power  vs.  KB Financial Group

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.

KB Financial Group

Risk-Adjusted Performance

Very 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.

Pair Trading with Korea Electric and KB Financial

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

The idea behind Korea Electric Power and KB Financial Group 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.