Correlation Between Prosperity Bancshares and Korea Electric

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

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

Diversification Opportunities for Prosperity Bancshares and Korea Electric

-0.14

Correlation Coefficient

Prosperity Bancshares  Korea Electric

Good diversification

The 3 months correlation between Prosperity and Korea is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Prosperity Bancshares 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 Prosperity Bancshares 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 Prosperity Bancshares 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 Prosperity Bancshares i.e., Prosperity Bancshares and Korea Electric go up and down completely randomly.

Pair Corralation between Prosperity Bancshares and Korea Electric

Allowing for the 90-day total investment horizon Prosperity Bancshares is expected to generate 0.69 times more return on investment than Korea Electric. However, Prosperity Bancshares is 1.45 times less risky than Korea Electric. It trades about 0.02 of its potential returns per unit of risk. Korea Electric Power is currently generating about -0.16 per unit of risk. If you would invest  6,142  in Prosperity Bancshares on February 25, 2024 and sell it today you would earn a total of  67.00  from holding Prosperity Bancshares or generate 1.09% return on investment over 90 days.

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

Prosperity Bancshares  vs.  Korea Electric Power

Prosperity Bancshares

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Prosperity Bancshares are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, Prosperity Bancshares is not utilizing all of its potentials. The latest stock price disturbance, 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 unsteady performance in the last few months, the Stock's technical and fundamental indicators remain relatively invariable which may send shares a bit higher in June 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Prosperity Bancshares and Korea Electric

The main advantage of trading using opposite Prosperity Bancshares and Korea Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prosperity Bancshares 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 Prosperity Bancshares 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.