Correlation Between Korea Electric and Pacific Basin

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

Diversification Opportunities for Korea Electric and Pacific Basin

-0.17

Correlation Coefficient

Korea Electric  Pacific Basin

Good diversification

The 3 months correlation between Korea and Pacific is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Korea Electric Power and Pacific Basin Shipping in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacific Basin Shipping 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 Pacific Basin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacific Basin Shipping has no effect on the direction of Korea Electric i.e., Korea Electric and Pacific Basin go up and down completely randomly.

Pair Corralation between Korea Electric and Pacific Basin

Considering the 90-day investment horizon Korea Electric Power is expected to generate 0.76 times more return on investment than Pacific Basin. However, Korea Electric Power is 1.31 times less risky than Pacific Basin. It trades about 0.09 of its potential returns per unit of risk. Pacific Basin Shipping is currently generating about 0.01 per unit of risk. If you would invest  701.00  in Korea Electric Power on December 25, 2024 and sell it today you would earn a total of  72.00  from holding Korea Electric Power or generate 10.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

Korea Electric Power  vs.  Pacific Basin Shipping

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 7 (%) 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.

Pacific Basin Shipping

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pacific Basin Shipping has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental drivers, Pacific Basin is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Korea Electric and Pacific Basin

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

The idea behind Korea Electric Power and Pacific Basin Shipping 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.