Korea / Special Situations, Clepsydra Capital

Sanghyun Park

Korea / Special Situations

Korea / Special Sits, Pairs, Index Rebalancing

Clepsydra Capital

Investigate special situations, pairs, and index rebalancing trades in Korea.

Event-Driven

Korea's local banks are still going strong as an inflation hedge stock. In particular, the sector leaders continue to shine the most, which is understandable.Shinhan Financial Group has outperformed most of its local peers of late, causing a harsh diversion vs. several names.<table class="table table-striped">
<colgroup>
<col width="200">
<col width="70">
<col width="70">
<col width="200">
<col width="70">
<col width="70">
<col width="70">
<col width="70">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Comp 1 (long)"}'>Comp 1 (long)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Ticker"}'>Ticker</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Market cap"}'>Market cap</td>
<td data-sheets-value='{"1":2,"2":"Comp 2 (short)"}'>Comp 2 (short)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Ticker"}'>Ticker</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Market cap"}'>Market cap</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"180-day correlation coefficient"}'>180-day correlation coefficient</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Sigma on a 20-day moving average"}'>Sigma on a 20-day moving average</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Woori Financial Group Inc"}'>Woori Financial Group Inc</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":316140}'>316140</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":7981.05789715}' data-sheets-numberformat='[null,2,"₩#,##0.0B"]'>₩7,981.1B</td>
<td data-sheets-value='{"1":2,"2":"Shinhan Financial Group Co., Ltd."}'>Shinhan Financial Group Co., Ltd.</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"055550"}'>055550</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":21826.3311565}' data-sheets-numberformat='[null,2,"₩#,##0.0B"]'>₩21,826.3B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.9223855252672568}' data-sheets-numberformat='[null,2,"#,##0.00000",1]'>0.92</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-1.7434864364413833}' data-sheets-numberformat='[null,2,"#,##0.00000",1]'>-1.74</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Hana Financial Group Inc"}'>Hana Financial Group Inc</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"086790"}'>086790</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":13676.0259241}' data-sheets-numberformat='[null,2,"₩#,##0.0B"]'>₩13,676.0B</td>
<td data-sheets-value='{"1":2,"2":"Shinhan Financial Group Co., Ltd."}'>Shinhan Financial Group Co., Ltd.</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"055550"}'>055550</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":21826.3311565}' data-sheets-numberformat='[null,2,"₩#,##0.0B"]'>₩21,826.3B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.9415706574402087}' data-sheets-numberformat='[null,2,"#,##0.00000",1]'>0.94</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-1.6583215542673198}' data-sheets-numberformat='[null,2,"#,##0.00000",1]'>-1.66</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"KB Financial Group Inc"}'>KB Financial Group Inc</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"105560"}'>105560</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":23701.05144}' data-sheets-numberformat='[null,2,"₩#,##0.0B"]'>₩23,701.1B</td>
<td data-sheets-value='{"1":2,"2":"Shinhan Financial Group Co., Ltd."}'>Shinhan Financial Group Co., Ltd.</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"055550"}'>055550</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":21826.3311565}' data-sheets-numberformat='[null,2,"₩#,##0.0B"]'>₩21,826.3B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.9610188453950309}' data-sheets-numberformat='[null,2,"#,##0.00000",1]'>0.96</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-1.5589371642688024}' data-sheets-numberformat='[null,2,"#,##0.00000",1]'>-1.56</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"BNK Financial Group Inc"}'>BNK Financial Group Inc</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"138930"}'>138930</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":2591.1852057}' data-sheets-numberformat='[null,2,"₩#,##0.0B"]'>₩2,591.2B</td>
<td data-sheets-value='{"1":2,"2":"Shinhan Financial Group Co., Ltd."}'>Shinhan Financial Group Co., Ltd.</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"055550"}'>055550</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":21826.3311565}' data-sheets-numberformat='[null,2,"₩#,##0.0B"]'>₩21,826.3B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.972704739094366}' data-sheets-numberformat='[null,2,"#,##0.00000",1]'>0.97</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-1.0491776745143695}' data-sheets-numberformat='[null,2,"#,##0.00000",1]'>-1.05</td>
</tr>
<tr><td colspan="8">Source: KRX 
</td></tr>
</tbody>
</table>The harshest diversion at this point goes to Woori Financial Group. The current sigma is -1.74 on a 20-day moving average. Its price ratio relative to Shinhan is now 9.55% below the 180-day average. In fact, it is at a 180-day low.<table class="table table-striped">
<colgroup>
<col width="70">
<col width="70">
<col width="70">
<col width="70">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Price ratio"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]'>Price ratio</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"%Δ to 180-day mean"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]'>%Δ to 180-day mean</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"%Δ to 180-day high"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]'>%Δ to 180-day high</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"%Δ to 180-day low"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]'>%Δ to 180-day low</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Woori Financial Group Inc"}' data-sheets-formula="=R[-16]C[0]">Woori Financial Group Inc</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.09551050492215632}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[0]C5-R[0]C[4])/R[0]C[4]">-9.55%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.158687466379774}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[0]C5-R[0]C[4])/R[0]C[4]">-15.87%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[0]C5-R[0]C[4])/R[0]C[4]">0.00%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Hana Financial Group Inc"}' data-sheets-formula="=R[-16]C[0]">Hana Financial Group Inc</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.007327297625351524}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[0]C5-R[0]C[4])/R[0]C[4]">-0.73%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.10178905429741551}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[0]C5-R[0]C[4])/R[0]C[4]">-10.18%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.14368007113294015}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[0]C5-R[0]C[4])/R[0]C[4]">14.37%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"KB Financial Group Inc"}' data-sheets-formula="=R[-16]C[0]">KB Financial Group Inc</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.022657232352227285}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[0]C5-R[0]C[4])/R[0]C[4]">-2.27%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.1009918086293668}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[0]C5-R[0]C[4])/R[0]C[4]">-10.10%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.08257600627747405}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[0]C5-R[0]C[4])/R[0]C[4]">8.26%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"BNK Financial Group Inc"}' data-sheets-formula="=R[-16]C[0]">BNK Financial Group Inc</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.037819100378221324}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[0]C5-R[0]C[4])/R[0]C[4]">3.78%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.048692073349346776}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[0]C5-R[0]C[4])/R[0]C[4]">-4.87%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.12800025002083512}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[0]C5-R[0]C[4])/R[0]C[4]">12.80%</td>
</tr>
<tr><td colspan="4">Source: KRX</td></tr>
</tbody>
</table><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/210/024/original/Woori+Financial+Group+Inc+vs.+Shinhan+Financial+Group+Co.%2C+Ltd.png?1622371064" class="editor-image img-responsive" data-smartkarma-image-id="210024"></figure></section>

Korea's local banks are still going strong as an inflation hedge stock. In particular, the sector leaders continue to shine the most, which is understandable.Shinhan Financial Group has outperformed most of its local peers of late, causing a harsh diversion vs. several names.












Comp 1 (long)
Ticker
Market cap
Comp 2 (short)
Ticker
Market cap
180-day correlation coefficient
Sigma on a 20-day moving average


Woori Financial Group Inc
316140
₩7,981.1B
Shinhan Financial Group Co., Ltd.
055550
₩21,826.3B
0.92
-1.74


Hana Financial Group Inc
086790
₩13,676.0B
Shinhan Financial Group Co., Ltd.
055550
₩21,826.3B
0.94
-1.66


KB Financial Group Inc
105560
₩23,701.1B
Shinhan Financial Group Co., Ltd.
055550
₩21,826.3B
0.96
-1.56


BNK Financial Group Inc
138930
₩2,591.2B
Shinhan Financial Group Co., Ltd.
055550
₩21,826.3B
0.97
-1.05

Source: KRX 


The harshest diversion at this point goes to Woori Financial Group. The current sigma is -1.74 on a 20-day moving average. Its price ratio relative to Shinhan is now 9.55% below the 180-day average. In fact, it is at a 180-day low.








Price ratio
%Δ to 180-day mean
%Δ to 180-day high
%Δ to 180-day low


Woori Financial Group Inc
-9.55%
-15.87%
0.00%


Hana Financial Group Inc
-0.73%
-10.18%
14.37%


KB Financial Group Inc
-2.27%
-10.10%
8.26%


BNK Financial Group Inc
3.78%
-4.87%
12.80%

Source: KRX



Korea Financials: Woori Vs. Shinhan Price Ratio at a 180-Day Low

I grouped Korea's closely correlated sector pairs within the same GICS sub-category. I applied the additional filtering: 1. a market cap of ₩1T or more and 2. stocks eligible to short-selling (KOSPI 200 and KOSDAQ 150). This grouping returns 141 sector pairs worthy of close monitoring for a long/short trade.<div class="content-highlight">You can find all the 141 sector pairs with the 180-day correlation coefficients and the sigma on a 20-day moving average in the attached file.</div><hr>Below are the top 10 most correlated sector pairs above a 180-day correlation coefficient of 0.95 or higher. They are mostly cyclical stocks, which are in line with our conventional thinking that cyclical stocks have a stronger tendency to move together than growth stocks.<table class="table table-striped">
<colgroup>
<col width="200">
<col width="200">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Comp 1"}'>Comp 1</td>
<td data-sheets-value='{"1":2,"2":"Comp 2"}'>Comp 2</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"180-day correlation coefficient"}'>180-day correlation coefficient</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Business type"}'>Business type</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Hyundai Mipo Dockyard Co., Ltd."}'>Hyundai Mipo Dockyard Co., Ltd.</td>
<td data-sheets-value='{"1":2,"2":"Korea Shipbuilding &amp;Offshore Engn Co Ltd"}'>Korea Shipbuilding &amp;Offshore Engn Co Ltd</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.97405}'>0.97405</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Shipbuilding"}'>Shipbuilding</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Hyundai Department Store Co Ltd"}'>Hyundai Department Store Co Ltd</td>
<td data-sheets-value='{"1":2,"2":"Lotte Shopping Co Ltd"}'>Lotte Shopping Co Ltd</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.97033}'>0.97033</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Retail"}'>Retail</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"GS Engineering &amp; Construction Corp"}'>GS Engineering &amp; Construction Corp</td>
<td data-sheets-value='{"1":2,"2":"Hyundai Engineering &amp; Construction Co."}'>Hyundai Engineering &amp; Construction Co.</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.96379}'>0.96379</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Construction"}'>Construction</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"HYUNDAI MOBIS CO., LTD."}'>HYUNDAI MOBIS CO., LTD.</td>
<td data-sheets-value='{"1":2,"2":"Hyundai Motor Co"}'>Hyundai Motor Co</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.96145}'>0.96145</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Automotive"}'>Automotive</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Shinhan Financial Group Co., Ltd."}'>Shinhan Financial Group Co., Ltd.</td>
<td data-sheets-value='{"1":2,"2":"KB Financial Group Inc"}'>KB Financial Group Inc</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.95989}'>0.95989</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Commercial bank"}'>Commercial bank</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"LG Innotek Co., Ltd."}'>LG Innotek Co., Ltd.</td>
<td data-sheets-value='{"1":2,"2":"LG Electronics Inc."}'>LG Electronics Inc.</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.95986}'>0.95986</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"IT"}'>IT</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Hansol Chemical Co Ltd"}'>Hansol Chemical Co Ltd</td>
<td data-sheets-value='{"1":2,"2":"Posco Chemical Co Ltd"}'>Posco Chemical Co Ltd</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.95374}'>0.95374</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Chemical"}'>Chemical</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Hanwha Aerospace Co Ltd"}'>Hanwha Aerospace Co Ltd</td>
<td data-sheets-value='{"1":2,"2":"Korea Aerospace Industries Ltd"}'>Korea Aerospace Industries Ltd</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.95243}'>0.95243</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Aerospace"}'>Aerospace</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"KG DongbuSteel Co Ltd"}'>KG DongbuSteel Co Ltd</td>
<td data-sheets-value='{"1":2,"2":"POSCO"}'>POSCO</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.95174}'>0.95174</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Steel"}'>Steel</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"KG DongbuSteel Co Ltd"}'>KG DongbuSteel Co Ltd</td>
<td data-sheets-value='{"1":2,"2":"Hyundai Steel Co"}'>Hyundai Steel Co</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.94972}'>0.94972</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Steel"}'>Steel</td>
</tr>
<tr><td colspan="4" rowspan="1" data-sheets-value='{"1":2,"2":"Source: KRX"}'>Source: KRX</td></tr>
</tbody>
</table>Below are the top 10 stocks suffering the harshest diversion on a 20-day moving average among those having a 180-day correlation coefficient of 0.80 or higher. E-Mart and Lotte Shopping top the list with a -3.27σ and a correlation coefficient of 0.85. Silicon Works/LG Electronics and BGF Retail/E-Mart follow as they are also in a heavy diversion at +2.79σ and +2.58σ, respectively. Woori Financial/KB Financial and Pan Ocean/HMM aren't far away either.<table class="table table-striped">
<colgroup>
<col width="200">
<col width="200">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Comp 1"}'>Comp 1</td>
<td data-sheets-value='{"1":2,"2":"Comp 2"}'>Comp 2</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"180-day correlation coefficient"}'>180-day correlation coefficient</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Sigma on a 20-day moving average"}'>Sigma on a 20-day moving average</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"E-Mart Inc"}'>E-Mart Inc</td>
<td data-sheets-value='{"1":2,"2":"Lotte Shopping Co Ltd"}'>Lotte Shopping Co Ltd</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.8512795053699035}' data-sheets-numberformat='[null,2,"#,##0.00000",1]'>0.85128</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-3.2691212591928522}' data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}'>-3.27</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Silicon Works Co Ltd"}'>Silicon Works Co Ltd</td>
<td data-sheets-value='{"1":2,"2":"LG Electronics Inc."}'>LG Electronics Inc.</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.8241051481549174}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}'>0.82411</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":2.794228170493331}' data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}'>2.79</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"BGF Retail Co Ltd"}'>BGF Retail Co Ltd</td>
<td data-sheets-value='{"1":2,"2":"E-Mart Inc"}'>E-Mart Inc</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.847331528848073}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}'>0.84733</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":2.5786176868102397}' data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}'>2.58</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Woori Financial Group Inc"}'>Woori Financial Group Inc</td>
<td data-sheets-value='{"1":2,"2":"KB Financial Group Inc"}'>KB Financial Group Inc</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.8451741524292201}' data-sheets-numberformat='[null,2,"#,##0.00000",1]'>0.84517</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-2.465145723060455}' data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}'>-2.47</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Pan Ocean Co Ltd"}'>Pan Ocean Co Ltd</td>
<td data-sheets-value='{"1":2,"2":"HMM Co Ltd"}'>HMM Co Ltd</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.935905540581882}' data-sheets-numberformat='[null,2,"#,##0.00000",1]'>0.93591</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-2.33130934144712}' data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}'>-2.33</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Hyundai Mipo Dockyard Co., Ltd."}'>Hyundai Mipo Dockyard Co., Ltd.</td>
<td data-sheets-value='{"1":2,"2":"Korea Shipbuilding &amp;Offshore Engn Co Ltd"}'>Korea Shipbuilding &amp;Offshore Engn Co Ltd</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.9740462682980674}' data-sheets-numberformat='[null,2,"#,##0.00000",1]'>0.97405</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":2.2401490556241117}' data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}'>2.24</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"SK Innovation Co Ltd"}'>SK Innovation Co Ltd</td>
<td data-sheets-value='{"1":2,"2":"Samsung SDI Co Ltd"}'>Samsung SDI Co Ltd</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.9458691690353619}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}'>0.94587</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":2.1867120471913637}' data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}'>2.19</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Hanwha Aerospace Co Ltd"}'>Hanwha Aerospace Co Ltd</td>
<td data-sheets-value='{"1":2,"2":"Korea Aerospace Industries Ltd"}'>Korea Aerospace Industries Ltd</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.9524282780324967}' data-sheets-numberformat='[null,2,"#,##0.00000",1]'>0.95243</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":2.086128932784612}' data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}'>2.09</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Hyundai Mipo Dockyard Co., Ltd."}'>Hyundai Mipo Dockyard Co., Ltd.</td>
<td data-sheets-value='{"1":2,"2":"Daewoo Engineering &amp; Construction Co Ltd"}'>Daewoo Engineering &amp; Construction Co Ltd</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.8206840084895756}' data-sheets-numberformat='[null,2,"#,##0.00000",1]'>0.82068</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1.9737577992711182}' data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}'>1.97</td>
</tr>
<tr>
<td>Woori Financial Group Inc</td>
<td>Shinhan Financial Group Co., Ltd.</td>
<td style="text-align: right;">0.87902</td>
<td style="text-align: right;">-1.93</td>
</tr>
<tr><td colspan="4" data-sheets-value='{"1":2,"2":"Source: KRX"}'>Source: KRX</td></tr>
</tbody>
</table>

I grouped Korea's closely correlated sector pairs within the same GICS sub-category. I applied the additional filtering: 1. a market cap of ₩1T or more and 2. stocks eligible to short-selling (KOSPI 200 and KOSDAQ 150). This grouping returns 141 sector pairs worthy of close monitoring for a long/short trade.You can find all the 141 sector pairs with the 180-day correlation coefficients and the sigma on a 20-day moving average in the attached file.Below are the top 10 most correlated sector pairs above a 180-day correlation coefficient of 0.95 or higher. They are mostly cyclical stocks, which are in line with our conventional thinking that cyclical stocks have a stronger tendency to move together than growth stocks.








Comp 1
Comp 2
180-day correlation coefficient
Business type


Hyundai Mipo Dockyard Co., Ltd.
Korea Shipbuilding &amp;Offshore Engn Co Ltd
0.97405
Shipbuilding


Hyundai Department Store Co Ltd
Lotte Shopping Co Ltd
0.97033
Retail


GS Engineering &amp; Construction Corp
Hyundai Engineering &amp; Construction Co.
0.96379
Construction


HYUNDAI MOBIS CO., LTD.
Hyundai Motor Co
0.96145
Automotive


Shinhan Financial Group Co., Ltd.
KB Financial Group Inc
0.95989
Commercial bank


LG Innotek Co., Ltd.
LG Electronics Inc.
0.95986
IT


Hansol Chemical Co Ltd
Posco Chemical Co Ltd
0.95374
Chemical


Hanwha Aerospace Co Ltd
Korea Aerospace Industries Ltd
0.95243
Aerospace


KG DongbuSteel Co Ltd
POSCO
0.95174
Steel


KG DongbuSteel Co Ltd
Hyundai Steel Co
0.94972
Steel

Source: KRX

Below are the top 10 stocks suffering the harshest diversion on a 20-day moving average among those having a 180-day correlation coefficient of 0.80 or higher. E-Mart and Lotte Shopping top the list with a -3.27σ and a correlation coefficient of 0.85. Silicon Works/LG Electronics and BGF Retail/E-Mart follow as they are also in a heavy diversion at +2.79σ and +2.58σ, respectively. Woori Financial/KB Financial and Pan Ocean/HMM aren't far away either.








Comp 1
Comp 2
180-day correlation coefficient
Sigma on a 20-day moving average


E-Mart Inc
Lotte Shopping Co Ltd
0.85128
-3.27


Silicon Works Co Ltd
LG Electronics Inc.
0.82411
2.79


BGF Retail Co Ltd
E-Mart Inc
0.84733
2.58


Woori Financial Group Inc
KB Financial Group Inc
0.84517
-2.47


Pan Ocean Co Ltd
HMM Co Ltd
0.93591
-2.33


Hyundai Mipo Dockyard Co., Ltd.
Korea Shipbuilding &amp;Offshore Engn Co Ltd
0.97405
2.24


SK Innovation Co Ltd
Samsung SDI Co Ltd
0.94587
2.19


Hanwha Aerospace Co Ltd
Korea Aerospace Industries Ltd
0.95243
2.09


Hyundai Mipo Dockyard Co., Ltd.
Daewoo Engineering &amp; Construction Co Ltd
0.82068
1.97


Woori Financial Group Inc
Shinhan Financial Group Co., Ltd.
0.87902
-1.93

Source: KRX



Korea Sector Long/Short Pairs Trade Ideas

Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

Our top five picks for Additional Tier 1 (AT1) price accretion comprise bonds issued by <a href="https://www.smartkarma.com/entities/tmb-bank-pcl" target="_blank" data-smartkarma-citation="entities:8090:1" rel="noopener">TMB Bank PCL (TMB TB)</a>, <a href="https://www.smartkarma.com/entities/banco-santander-brasil-sa" target="_blank" data-smartkarma-citation="entities:27709:1" rel="noopener">Banco Santander Brasil SA (SANB11 BZ)</a>, <a href="https://www.smartkarma.com/entities/citizens-financial-group" target="_blank" data-smartkarma-citation="entities:16004:1" rel="noopener">Citizens Financial (CFG US)</a>, <a href="https://www.smartkarma.com/entities/grupo-financiero-banorte-o" target="_blank" data-smartkarma-citation="entities:24780:1" rel="noopener">Grupo Financiero Banorte-O (GFNORTEO MF)</a> and <a href="https://www.smartkarma.com/entities/banco-do-brasil-sa" target="_blank" data-smartkarma-citation="entities:24564:1" rel="noopener">Banco Do Brasil Sa (BBAS3 BZ)</a>.  Three banks issued AT1 notes with coupons lower than yields on their respective shorter callable bonds over the last two weeks. The result was a jump in the price of the shorter callable bonds. Information price discovery drove this impact. For more on this, please see: <a href="https://www.smartkarma.com/insights/chong-hing-bank-at1-alchemy" target="_blank" data-smartkarma-citation="insights:41645" rel="noopener">Chong Hing Bank: AT1 Alchemy</a>. The alchemy behind these moves requires deconstructing bond spread components to separate the underlying credit risk of the firm from the non-call risk of the security. We then model the possible impact from issuing new AT1 bonds on the price of already outstanding securities.

Our top five picks for Additional Tier 1 (AT1) price accretion comprise bonds issued by TMB Bank PCL (TMB TB), Banco Santander Brasil SA (SANB11 BZ), Citizens Financial (CFG US), Grupo Financiero Banorte-O (GFNORTEO MF) and Banco Do Brasil Sa (BBAS3 BZ).  Three banks issued AT1 notes with coupons lower than yields on their respective shorter callable bonds over the last two weeks. The result was a jump in the price of the shorter callable bonds. Information price discovery drove this impact. For more on this, please see: Chong Hing Bank: AT1 Alchemy. The alchemy behind these moves requires deconstructing bond spread components to separate the underlying credit risk of the firm from the non-call risk of the security. We then model the possible impact from issuing new AT1 bonds on the price of already outstanding securities. 

Bank Credit Strategy: Pre-Positioning for AT1 Price Accretion

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Orange Life Insurance, Ltd.  / Event-Driven

<h2>The Delisting of Orange Life Insurance Korea</h2>
Orange Life Insurance is scheduled to be delisted on 14 February 2020. The delisting of <a href="https://www.smartkarma.com/entities/orange-life-insurance-ltd" target="_blank" data-smartkarma-citation="entities:23999:1" rel="noopener">Orange Life Insurance, Ltd. (079440 KS)</a> is once again a grim reminder of how the minority shareholders in Korea get mistreated versus the controlling shareholders but there is still a lack of legal means to receive fair treatment. On 10 January 2020, there was an <a href="https://n.news.naver.com/article/016/0001622919" target="_blank" rel="noopener">EGM</a> where the shareholders agreed to the Orange Life completing a stock swap with <a href="https://www.smartkarma.com/entities/shinhan-financial-group-ltd" target="_blank" data-smartkarma-citation="entities:6978:1" rel="noopener">Shinhan Financial (055550 KS)</a> shares for the remaining 40.85% stake of Orange Life. The stock swap ratio was determined at 1 share of Orange Life Insurance to 0.66 shares of Shinhan Financial.
<h2>Who Will Acquire Prudential Life Insurance Korea? </h2>
Prudential Life Insurance Korea is up for sale and so far this is likely to be the biggest M&amp;A deal in Korea so far in 2020. There have been four companies including KB Financial Group, MBK Partners, Hahn &amp; Company, and IMM Private Equity that have been <a href="https://n.news.naver.com/article/009/0004505362" target="_blank" rel="noopener">shortlisted</a> to make preliminary bids. The deal is estimated to be at least<a href="https://www.internationalinvestment.net/news/4009303/prudential-life-korea-sale-draws-interest-firms" target="_blank" rel="noopener"> 2 trillion won </a>(100% stake of Prudential Life Insurance Korea).
<div class="content-highlight">
Applying the recent sale of Orange Life Insurance (1x P/B), Prudential Life Insurance is likely to be valued at a range of 2.0 trillion won to 3.0 trillion won, in our view. If the buyer is able to acquire a 100% stake in Prudential Life at close to 2.0 trillion won, then it could be viewed favorably on the acquirer. However, if the M&amp;A price is close to 3.0 trillion won or more, then this could be perceived as potentially overpaying for this deal. 
</div>

The Delisting of Orange Life Insurance Korea
Orange Life Insurance is scheduled to be delisted on 14 February 2020. The delisting of Orange Life Insurance, Ltd. (079440 KS) is once again a grim reminder of how the minority shareholders in Korea get mistreated versus the controlling shareholders but there is still a lack of legal means to receive fair treatment. On 10 January 2020, there was an EGM where the shareholders agreed to the Orange Life completing a stock swap with Shinhan Financial (055550 KS) shares for the remaining 40.85% stake of Orange Life. The stock swap ratio was determined at 1 share of Orange Life Insurance to 0.66 shares of Shinhan Financial.
Who Will Acquire Prudential Life Insurance Korea? 
Prudential Life Insurance Korea is up for sale and so far this is likely to be the biggest M&amp;A deal in Korea so far in 2020. There have been four companies including KB Financial Group, MBK Partners, Hahn &amp; Company, and IMM Private Equity that have been shortlisted to make preliminary bids. The deal is estimated to be at least 2 trillion won (100% stake of Prudential Life Insurance Korea).

Applying the recent sale of Orange Life Insurance (1x P/B), Prudential Life Insurance is likely to be valued at a range of 2.0 trillion won to 3.0 trillion won, in our view. If the buyer is able to acquire a 100% stake in Prudential Life at close to 2.0 trillion won, then it could be viewed favorably on the acquirer. However, if the M&amp;A price is close to 3.0 trillion won or more, then this could be perceived as potentially overpaying for this deal. 


The Delisting of Orange Life Insurance & Who Will Acquire Prudential Life Insurance Korea?

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/kb-financial-group-inc" target="_blank" data-smartkarma-citation="entities:718:1" rel="noopener">Kb Financial Group (105560 KS) </a>and <a href="https://www.smartkarma.com/entities/woori-financial-group-inc" target="_blank" data-smartkarma-citation="entities:27995:1" rel="noopener">Woori Financial Group (316140 KS)</a> are the second and fourth largest banking groups in South Korea (in terms of market cap). Woori Financial has been one of the worst stocks in the past year among the KOSPI 200 companies. <div class="content-highlight">In our pair trade idea, we recommend going long on Woori Financial and going short on KB Financial Group as we believe the relative outperformance of KB Financial has been excessive versus Woori Financial in the past 6-9 months.</div><h2>Key Catalysts:</h2><ul>
<li>Bid for Prudential Life Insurance (Korea) </li>
<li>Chairman of Woori Financial Group buying shares</li>
<li>Dividend factor (expanded difference)</li>
</ul>

Kb Financial Group (105560 KS) and Woori Financial Group (316140 KS) are the second and fourth largest banking groups in South Korea (in terms of market cap). Woori Financial has been one of the worst stocks in the past year among the KOSPI 200 companies. In our pair trade idea, we recommend going long on Woori Financial and going short on KB Financial Group as we believe the relative outperformance of KB Financial has been excessive versus Woori Financial in the past 6-9 months.Key Catalysts:
Bid for Prudential Life Insurance (Korea) 
Chairman of Woori Financial Group buying shares
Dividend factor (expanded difference)


A Pair Trade Between KB Financial and Woori Financial

South Korea

Woori Financial Group Inc. provides commercial banking services. The Company offers deposit services, loan services, bill services, settlement services, credit card, international, online banking, and other related services. Woori Financial Group also operates banking and retail banking businesses.

Price Gauge
52-week Range	0.00 - 0.00
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Woori Financial Group (316140 KS)

Korea Financials: Woori Vs. Shinhan Price Ratio at a 180-Day Low

This post discusses the current diversion in the Woori vs. Shinhan pair and explains why we should see a reversion at the current level.

Sanghyun Park

Korea Sector Long/Short Pairs Trade Ideas

This post investigates the 141 sector pairs worthy of close monitoring for a long/short trade. They are selected based on the GICS sub-categories,...

Sanghyun Park

Bank Credit Strategy: Pre-Positioning for AT1 Price Accretion

Our top five picks for Additional Tier 1 (AT1) price accretion comprise bonds issued by TMB Bank PCL (TMB TB), Banco Santander Brasil SA (SANB11...

Hank Calenti, CFA

The Delisting of Orange Life Insurance & Who Will Acquire Prudential Life Insurance Korea?

The Delisting of Orange Life Insurance Korea Orange Life Insurance is scheduled to be delisted on 14 February 2020. The delisting of Orange Life...

Douglas Kim

A Pair Trade Between KB Financial and Woori Financial

Kb Financial Group (105560 KS) and Woori Financial Group (316140 KS) are the second and fourth largest banking groups in South Korea (in terms of...

Douglas Kim

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52-week Range

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