Correlation Between Southern and Korea Electric

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

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

Diversification Opportunities for Southern and Korea Electric

-0.22

Correlation Coefficient

Southern  Korea Electric

Very good diversification

The 3 months correlation between Southern and Korea is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Southern Company 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 Southern 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 Southern Company 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 Southern i.e., Southern and Korea Electric go up and down completely randomly.

Pair Corralation between Southern and Korea Electric

Allowing for the 90-day total investment horizon Southern Company is expected to generate 0.49 times more return on investment than Korea Electric. However, Southern Company is 2.03 times less risky than Korea Electric. It trades about 0.13 of its potential returns per unit of risk. Korea Electric Power is currently generating about -0.11 per unit of risk. If you would invest  7,110  in Southern Company on February 1, 2024 and sell it today you would earn a total of  240.00  from holding Southern Company or generate 3.38% return on investment over 90 days.

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

Southern Company  vs.  Korea Electric Power

Southern

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Southern Company are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Southern is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Korea Electric Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Korea Electric Power has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, Korea Electric is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Southern and Korea Electric

The main advantage of trading using opposite Southern and Korea Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southern 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 Southern Company 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.

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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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.