Correlation Between Shinhan Financial and Korea Electric

Can any of the company-specific risk be diversified away by investing in both Shinhan Financial and Korea Electric 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 Shinhan Financial and Korea Electric into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Shinhan Financial Group and Korea Electric Power, you can compare the effects of market volatilities on Shinhan Financial and Korea Electric 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 Shinhan Financial with a short position of Korea Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shinhan Financial and Korea Electric.

Diversification Opportunities for Shinhan Financial and Korea Electric

-0.39

Correlation Coefficient

Shinhan Financial  Korea Electric

Very good diversification

The 3 months correlation between Shinhan and Korea is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Shinhan Financial Group and Korea Electric Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korea Electric Power and Shinhan Financial 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 Shinhan Financial Group are associated (or correlated) with Korea Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Korea Electric Power has no effect on the direction of Shinhan Financial i.e., Shinhan Financial and Korea Electric go up and down completely randomly.

Pair Corralation between Shinhan Financial and Korea Electric

Considering the 90-day investment horizon Shinhan Financial is expected to generate 51.4 times less return on investment than Korea Electric. But when comparing it to its historical volatility, Shinhan Financial Group is 1.52 times less risky than Korea Electric. It trades about 0.0 of its potential returns per unit of risk. Korea Electric Power is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  681.00  in Korea Electric Power on December 28, 2024 and sell it today you would earn a total of  80.00  from holding Korea Electric Power or generate 11.75% return on investment over 90 days.

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

Shinhan Financial Group  vs.  Korea Electric Power

Shinhan Financial

Risk-Adjusted Performance

Very Weak

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

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 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical and fundamental indicators, Korea Electric reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shinhan Financial and Korea Electric

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

The idea behind Shinhan Financial Group and Korea Electric Power 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.