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

-0.66

Correlation Coefficient

Korea Electric  Entergy

Excellent diversification

The 3 months correlation between Korea and Entergy is -0.66. 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 Power is expected to under-perform the Entergy. In addition to that, Korea Electric is 1.56 times more volatile than Entergy. It trades about -0.01 of its total potential returns per unit of risk. Entergy is currently generating about 0.02 per unit of volatility. If you would invest  10,188  in Entergy on March 2, 2024 and sell it today you would earn a total of  846.50  from holding Entergy or generate 8.31% return on investment over 90 days.

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

Korea Electric Power  vs.  Entergy

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 weak performance in the last few months, the Stock's technical and fundamental indicators remain relatively invariable which may send shares a bit higher in July 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Entergy

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Entergy are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Entergy may actually be approaching a critical reversion point that can send shares even higher in July 2024.

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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.