Korea / Special Sits, Pairs, Index Rebalancing, Clepsydra Capital

Sanghyun Park

Korea / Special Sits, Pairs, Index Rebalancing

Clepsydra Capital

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

Event-Driven

Korea has 6 closely correlated and co-integrated sector pairs. All of them have a +0.8 180-day correlation coefficient. Also, they all have a sufficiently linear 180-day price scattered chart showing the nature of their high cointegration.<table class="table table-striped">
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<tr><td colspan="5" rowspan="1" style="width: 723.636px;" data-sheets-value='{"1":2,"2":"Closely correlated &amp; co-integrated sector pairs in Korea"}'>Closely correlated &amp; co-integrated sector pairs in Korea</td></tr>
<tr>
<td style="width: 181.818px;" data-sheets-value='{"1":2,"2":"Name"}'>Name</td>
<td style="width: 96.3636px;" data-sheets-value='{"1":2,"2":"Ticker"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]'>Ticker</td>
<td style="width: 165.455px;" data-sheets-value='{"1":2,"2":"Name"}'>Name</td>
<td style="width: 60.9091px;" data-sheets-value='{"1":2,"2":"Ticker"}'>Ticker</td>
<td style="text-align: right; width: 135.455px;" data-sheets-value='{"1":2,"2":"180-day correlation"}'>180-day correlation</td>
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<td style="width: 181.818px;" data-sheets-value='{"1":2,"2":"Shinhan Financial Group Co., Ltd."}' data-sheets-formula="=Data!R[-2]C[1]">Shinhan Financial Group Co., Ltd.</td>
<td style="width: 96.3636px;" data-sheets-value='{"1":2,"2":"055550"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]' data-sheets-formula="=Data!R[-1]C[0]">055550</td>
<td style="width: 165.455px;" data-sheets-value='{"1":2,"2":"KB Financial Group Inc"}' data-sheets-formula="=Data!R[-2]C[0]">KB Financial Group Inc</td>
<td style="width: 60.9091px;" data-sheets-value='{"1":2,"2":"105560"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]' data-sheets-formula="=Data!R[-1]C[-1]">105560</td>
<td style="text-align: right; width: 135.455px;" data-sheets-value='{"1":3,"3":0.9610517352067552}' data-sheets-numberformat='[null,2,"#,##0.00000",1]' data-sheets-formula="=correl('1'!R870C10:R994C10, '1'!R870C11:R994C11)">0.96105</td>
</tr>
<tr>
<td style="width: 181.818px;" data-sheets-value='{"1":2,"2":"LG Uplus Corp"}' data-sheets-formula="=Data!R[-3]C[3]">LG Uplus Corp</td>
<td style="width: 96.3636px;" data-sheets-value='{"1":2,"2":"032640"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]' data-sheets-formula="=Data!R[-2]C[2]">032640</td>
<td style="width: 165.455px;" data-sheets-value='{"1":2,"2":"SK Telecom Co Ltd"}' data-sheets-formula="=Data!R[-3]C[2]">SK Telecom Co Ltd</td>
<td style="width: 60.9091px;" data-sheets-value='{"1":2,"2":"017670"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]' data-sheets-formula="=Data!R[-2]C[1]">017670</td>
<td style="text-align: right; width: 135.455px;" data-sheets-value='{"1":3,"3":0.8992786663054949}' data-sheets-numberformat='[null,2,"#,##0.00000",1]' data-sheets-formula="=correl('2'!R870C10:R994C10, '2'!R870C11:R994C11)">0.89928</td>
</tr>
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<td style="width: 181.818px;" data-sheets-value='{"1":2,"2":"Kia Corp"}' data-sheets-formula="=Data!R[-4]C[5]">Kia Corp</td>
<td style="width: 96.3636px;" data-sheets-value='{"1":2,"2":"000270"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]' data-sheets-formula="=Data!R[-3]C[4]">000270</td>
<td style="width: 165.455px;" data-sheets-value='{"1":2,"2":"Hyundai Motor Co"}' data-sheets-formula="=Data!R[-4]C[4]">Hyundai Motor Co</td>
<td style="width: 60.9091px;" data-sheets-value='{"1":2,"2":"005380"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]' data-sheets-formula="=Data!R[-3]C[3]">005380</td>
<td style="text-align: right; width: 135.455px;" data-sheets-value='{"1":3,"3":0.8668911065680154}' data-sheets-numberformat='[null,2,"#,##0.00000",1]' data-sheets-formula="=correl('3'!R870C10:R994C10, '3'!R870C11:R994C11)">0.86689</td>
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<td style="width: 181.818px;" data-sheets-value='{"1":2,"2":"Celltrion HealthCare Co Ltd"}' data-sheets-formula="=Data!R[-5]C[7]">Celltrion HealthCare Co Ltd</td>
<td style="width: 96.3636px;" data-sheets-value='{"1":2,"2":"091990"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]' data-sheets-formula="=Data!R[-4]C[6]">091990</td>
<td style="width: 165.455px;" data-sheets-value='{"1":2,"2":"Celltrion, Inc."}' data-sheets-formula="=Data!R[-5]C[6]">Celltrion, Inc.</td>
<td style="width: 60.9091px;" data-sheets-value='{"1":2,"2":"068270"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]' data-sheets-formula="=Data!R[-4]C[5]">068270</td>
<td style="text-align: right; width: 135.455px;" data-sheets-value='{"1":3,"3":0.850526307159412}' data-sheets-numberformat='[null,2,"#,##0.00000",1]' data-sheets-formula="=correl('4'!R870C10:R994C10, '4'!R870C11:R994C11)">0.85053</td>
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<td style="width: 181.818px;" data-sheets-value='{"1":2,"2":"BGF Retail Co Ltd"}' data-sheets-formula="=Data!R[-6]C[9]">BGF Retail Co Ltd</td>
<td style="width: 96.3636px;" data-sheets-value='{"1":2,"2":"282330"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]' data-sheets-formula="=Data!R[-5]C[8]">282330</td>
<td style="width: 165.455px;" data-sheets-value='{"1":2,"2":"GS Retail Co Ltd"}' data-sheets-formula="=Data!R[-6]C[8]">GS Retail Co Ltd</td>
<td style="width: 60.9091px;" data-sheets-value='{"1":2,"2":"007070"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]' data-sheets-formula="=Data!R[-5]C[7]">007070</td>
<td style="text-align: right; width: 135.455px;" data-sheets-value='{"1":3,"3":0.7760017852780396}' data-sheets-numberformat='[null,2,"#,##0.00000",1]' data-sheets-formula="=correl('5'!R870C10:R994C10, '5'!R870C11:R994C11)">0.77600</td>
</tr>
<tr>
<td style="width: 181.818px;" data-sheets-value='{"1":2,"2":"Hyundai Department Store Co Ltd"}' data-sheets-formula="=Data!R[-7]C[11]">Hyundai Department Store Co Ltd</td>
<td style="width: 96.3636px;" data-sheets-value='{"1":2,"2":"069960"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]' data-sheets-formula="=Data!R[-6]C[10]">069960</td>
<td style="width: 165.455px;" data-sheets-value='{"1":2,"2":"Shinsegae Inc"}' data-sheets-formula="=Data!R[-7]C[10]">Shinsegae Inc</td>
<td style="width: 60.9091px;" data-sheets-value='{"1":2,"2":"004170"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]' data-sheets-formula="=Data!R[-6]C[9]">004170</td>
<td style="text-align: right; width: 135.455px;" data-sheets-value='{"1":3,"3":0.9327816777063404}' data-sheets-numberformat='[null,2,"#,##0.00000",1]' data-sheets-formula="=correl('6'!R870C10:R994C10, '6'!R870C11:R994C11)">0.93278</td>
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<tr><td colspan="5" rowspan="1" style="width: 723.636px;" data-sheets-value='{"1":2,"2":"Source: KRX"}'>Source: KRX</td></tr>
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</table>In the light of the short-selling resumption next week, these sector pairs will likely draw attention.Then, which pair is at an extreme sigma (±2.0σ) on a 20-day moving average? At the last close, three pairs come on the radar.<ol>
<li>Shinhan Financial and KB Financial: +2.16σ</li>
<li>Kia Corp and Hyundai Motor: -2.04σ</li>
<li>Hyundai Department Store and Shinsegae: -1.81σ</li>
</ol><table class="table table-striped">
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<td style="width: 320.909px;" data-sheets-value='{"1":2,"2":"Sigma (σ) on a 20-day moving average"}'>Sigma (σ) on a 20-day moving average</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":2,"2":"Today"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]'>Today</td>
<td style="text-align: right; width: 45.4545px;" data-sheets-value='{"1":2,"2":"T-1"}'>T-1</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":2,"2":"T-2"}'>T-2</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":2,"2":"T-3"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]'>T-3</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":2,"2":"T-4"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]'>T-4</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":2,"2":"T-5"}' data-sheets-numberformat='[null,4,"[$₩]#,##0"]'>T-5</td>
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<td style="width: 320.909px;" data-sheets-value='{"1":2,"2":"Shinhan Financial Group Co., Ltd./KB Financial Group Inc"}' data-sheets-formula='=Data!R[-11]C[1]&amp;"/"&amp;Data!R[-11]C[2]'>Shinhan Financial Group Co., Ltd./KB Financial Group Inc</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":2.160993227615466}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$2")'>2.16</td>
<td style="text-align: right; width: 45.4545px;" data-sheets-value='{"1":3,"3":2.542772683735228}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$3")'>2.54</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":1.786381555409661}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$4")'>1.79</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":1.1128800501751042}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$5")'>1.11</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":0.181530165798035}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$6")'>0.18</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-0.22641999615163677}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$7")'>-0.23</td>
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<td style="width: 320.909px;" data-sheets-value='{"1":2,"2":"LG Uplus Corp/SK Telecom Co Ltd"}' data-sheets-formula='=Data!R[-12]C[3]&amp;"/"&amp;Data!R[-12]C[4]'>LG Uplus Corp/SK Telecom Co Ltd</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-0.24660010671563912}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$2")'>-0.25</td>
<td style="text-align: right; width: 45.4545px;" data-sheets-value='{"1":3,"3":-0.10403426571856596}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$3")'>-0.10</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-1.6117954095017157}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$4")'>-1.61</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-1.6376484979254156}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$5")'>-1.64</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-1.4249128627679264}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$6")'>-1.42</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-2.087684413507805}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$7")'>-2.09</td>
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<td style="width: 320.909px;" data-sheets-value='{"1":2,"2":"Kia Corp/Hyundai Motor Co"}' data-sheets-formula='=Data!R[-13]C[5]&amp;"/"&amp;Data!R[-13]C[6]'>Kia Corp/Hyundai Motor Co</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-2.0407109696616685}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$2")'>-2.04</td>
<td style="text-align: right; width: 45.4545px;" data-sheets-value='{"1":3,"3":-2.0025888653486463}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$3")'>-2.00</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-1.1695043509161958}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$4")'>-1.17</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-0.004698906236027549}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$5")'>0.00</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":0.10273148905333784}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$6")'>0.10</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-1.0802292544899608}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$7")'>-1.08</td>
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<td style="width: 320.909px;" data-sheets-value='{"1":2,"2":"Celltrion HealthCare Co Ltd/Celltrion, Inc."}' data-sheets-formula='=Data!R[-14]C[7]&amp;"/"&amp;Data!R[-14]C[8]'>Celltrion HealthCare Co Ltd/Celltrion, Inc.</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-0.31044173489418}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$2")'>-0.31</td>
<td style="text-align: right; width: 45.4545px;" data-sheets-value='{"1":3,"3":-0.7388105592067177}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$3")'>-0.74</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-1.0110561898756243}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$4")'>-1.01</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-0.0565672498648304}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$5")'>-0.06</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-0.1863196550598434}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$6")'>-0.19</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":0.5127886597937376}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$7")'>0.51</td>
</tr>
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<td style="width: 320.909px;" data-sheets-value='{"1":2,"2":"BGF Retail Co Ltd/GS Retail Co Ltd"}' data-sheets-formula='=Data!R[-15]C[9]&amp;"/"&amp;Data!R[-15]C[10]'>BGF Retail Co Ltd/GS Retail Co Ltd</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":0.2360588141562515}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$2")'>0.24</td>
<td style="text-align: right; width: 45.4545px;" data-sheets-value='{"1":3,"3":-2.102593735245234}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$3")'>-2.10</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-2.5568836748773385}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$4")'>-2.56</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-2.3214237049099196}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$5")'>-2.32</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-0.024092449046153583}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$6")'>-0.02</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":0.4712110272418423}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$7")'>0.47</td>
</tr>
<tr>
<td style="width: 320.909px;" data-sheets-value='{"1":2,"2":"Hyundai Department Store Co Ltd/Shinsegae Inc"}' data-sheets-formula='=Data!R[-16]C[11]&amp;"/"&amp;Data!R[-16]C[12]'>Hyundai Department Store Co Ltd/Shinsegae Inc</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-1.807722354711979}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$2")'>-1.81</td>
<td style="text-align: right; width: 45.4545px;" data-sheets-value='{"1":3,"3":-2.309293992473888}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$3")'>-2.31</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-2.530789825470454}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$4")'>-2.53</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-1.733312375711856}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$5")'>-1.73</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-1.3190244950375916}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$6")'>-1.32</td>
<td style="text-align: right; width: 46.3636px;" data-sheets-value='{"1":3,"3":-0.03766239765956894}' data-sheets-numberformat='[null,2,"#,##0.00",1]' data-sheets-formula='=indirect(R[0]C8&amp;"!$I$7")'>-0.04</td>
</tr>
<tr><td colspan="7" rowspan="1" style="width: 723.636px;" data-sheets-value='{"1":2,"2":"Source: KRX"}'>Source: KRX</td></tr>
</tbody>
</table>Out of these three pairs currently at ±2.0σ, the Kia Corp/Hyundai Motor pair deserves special attention as mean reversion appears already in progress for the other two pairs.

Korea has 6 closely correlated and co-integrated sector pairs. All of them have a +0.8 180-day correlation coefficient. Also, they all have a sufficiently linear 180-day price scattered chart showing the nature of their high cointegration.








Closely correlated &amp; co-integrated sector pairs in Korea

Name
Ticker
Name
Ticker
180-day correlation


Shinhan Financial Group Co., Ltd.
055550
KB Financial Group Inc
105560
0.96105


LG Uplus Corp
032640
SK Telecom Co Ltd
017670
0.89928


Kia Corp
000270
Hyundai Motor Co
005380
0.86689


Celltrion HealthCare Co Ltd
091990
Celltrion, Inc.
068270
0.85053


BGF Retail Co Ltd
282330
GS Retail Co Ltd
007070
0.77600


Hyundai Department Store Co Ltd
069960
Shinsegae Inc
004170
0.93278

Source: KRX

In the light of the short-selling resumption next week, these sector pairs will likely draw attention.Then, which pair is at an extreme sigma (±2.0σ) on a 20-day moving average? At the last close, three pairs come on the radar.
Shinhan Financial and KB Financial: +2.16σ
Kia Corp and Hyundai Motor: -2.04σ
Hyundai Department Store and Shinsegae: -1.81σ












Sigma (σ) on a 20-day moving average
Today
T-1
T-2
T-3
T-4
T-5


Shinhan Financial Group Co., Ltd./KB Financial Group Inc
2.16
2.54
1.79
1.11
0.18
-0.23


LG Uplus Corp/SK Telecom Co Ltd
-0.25
-0.10
-1.61
-1.64
-1.42
-2.09


Kia Corp/Hyundai Motor Co
-2.04
-2.00
-1.17
0.00
0.10
-1.08


Celltrion HealthCare Co Ltd/Celltrion, Inc.
-0.31
-0.74
-1.01
-0.06
-0.19
0.51


BGF Retail Co Ltd/GS Retail Co Ltd
0.24
-2.10
-2.56
-2.32
-0.02
0.47


Hyundai Department Store Co Ltd/Shinsegae Inc
-1.81
-2.31
-2.53
-1.73
-1.32
-0.04

Source: KRX

Out of these three pairs currently at ±2.0σ, the Kia Corp/Hyundai Motor pair deserves special attention as mean reversion appears already in progress for the other two pairs.

Korea Pair Trade Idea: 6 Closely Correlated & Cointegrated Sector Pairs

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

After the market today, it was reported in Hankyung Business Daily that the Hyundai Dept Store Group is in the process of trying to <a href="https://finance.naver.com/item/news_read.nhn?article_id=0004348853&amp;office_id=015&amp;code=052260&amp;sm=title_entity_id.basic" target="_blank" rel="noopener">acquire a 27.9%</a> controlling stake in SK Bioland (052260 KS) from <a href="https://www.smartkarma.com/entities/skc-co-ltd" target="_blank" data-smartkarma-citation="entities:3970:1" rel="noopener">SKC Co Ltd (011790 KS)</a>. An exact purchase price for the SK Bioland stake has not yet been determined. SK Bioland is a leading provider of cosmetics raw materials in Korea. The four key companies involved in this deal (Hyundai Dept Store, Handsome, SK Bioland, and SKC) have yet to formally announce the key terms of this M&amp;A deal. Over the years, in cases like this (where the key companies have yet to formally announce the M&amp;A terms but a major newspaper leaks the M&amp;A deal), the M&amp;A deals get completed roughly 60-80% of the time.Which Company Has the Most to Gain? Among the four companies mentioned in this insight, (SK Bioland, SKC, Hyundai Dept Store, and Handsome), it would appear SKC has the most to gain from this deal at current prices, especially if the deal involves an attractive management premium. Although SK Bioland's stake is up for sale, the sharp appreciation of its share is a bit concerning, especially in terms of the downside risk.

After the market today, it was reported in Hankyung Business Daily that the Hyundai Dept Store Group is in the process of trying to acquire a 27.9% controlling stake in SK Bioland (052260 KS) from SKC Co Ltd (011790 KS). An exact purchase price for the SK Bioland stake has not yet been determined. SK Bioland is a leading provider of cosmetics raw materials in Korea. The four key companies involved in this deal (Hyundai Dept Store, Handsome, SK Bioland, and SKC) have yet to formally announce the key terms of this M&amp;A deal. Over the years, in cases like this (where the key companies have yet to formally announce the M&amp;A terms but a major newspaper leaks the M&amp;A deal), the M&amp;A deals get completed roughly 60-80% of the time.Which Company Has the Most to Gain? Among the four companies mentioned in this insight, (SK Bioland, SKC, Hyundai Dept Store, and Handsome), it would appear SKC has the most to gain from this deal at current prices, especially if the deal involves an attractive management premium. Although SK Bioland's stake is up for sale, the sharp appreciation of its share is a bit concerning, especially in terms of the downside risk. 

Korea M&A Spotlight: SKC to Sell Its 27.9% Stake of SK Bioland to Hyundai Dept Store Group?

Cross Asset Strategy

South Korea shockingly jumped to the world's number two rank in the COVID-19 confirmed cases this week, up from number six only a few days ago. The number of confirmed cases spiked by 73 in just two days on February 19th and 20th to reach a total of 104 confirmed cases, placing South Korea just behind China. As of 10 AM on February 21st, there were 106 confirmed cases in South Korea. In addition, there was an unfortunate first case of death related to COVID-19 in South Korea on February 20th.The fear in this city started with the 31st confirmed case-patient (age 60, female) on February 18th. When she was worshipping in the Daegu Shincheonji building this past weekend, there were more than 1,000 people that were there at that same time. Of the 1,000 people that attended the same service as patient #31, about <a href="http://news.kbs.co.kr/news/view.do?ncd=4386042&amp;ref=A" target="_blank" rel="noopener">135 of them</a> have been found to have high fevers and what is even more worrisome is that the local authorities have been unable to reach about<a href="http://news.kbs.co.kr/news/view.do?ncd=4386042&amp;ref=A" target="_blank" rel="noopener"> 160 of these 1,000 members.</a><div class="content-highlight">As a result of fears about the further spread of COVID-19 virus, <a href="https://news.mt.co.kr/mtview.php?no=2020022010521014072" target="_blank" rel="noopener">more than 0.7 million South Koreans</a> have petitioned to the Blue House to temporarily restrict the Chinese nationals from entering the country until the COVID-19 virus is under control. This is an extremely difficult situation for the Korean government right now since making the wrong decisions could result in a matter of life and death and this involves millions of lives and economies at stake. </div>

South Korea shockingly jumped to the world's number two rank in the COVID-19 confirmed cases this week, up from number six only a few days ago. The number of confirmed cases spiked by 73 in just two days on February 19th and 20th to reach a total of 104 confirmed cases, placing South Korea just behind China. As of 10 AM on February 21st, there were 106 confirmed cases in South Korea. In addition, there was an unfortunate first case of death related to COVID-19 in South Korea on February 20th.The fear in this city started with the 31st confirmed case-patient (age 60, female) on February 18th. When she was worshipping in the Daegu Shincheonji building this past weekend, there were more than 1,000 people that were there at that same time. Of the 1,000 people that attended the same service as patient #31, about 135 of them have been found to have high fevers and what is even more worrisome is that the local authorities have been unable to reach about 160 of these 1,000 members.As a result of fears about the further spread of COVID-19 virus, more than 0.7 million South Koreans have petitioned to the Blue House to temporarily restrict the Chinese nationals from entering the country until the COVID-19 virus is under control. This is an extremely difficult situation for the Korean government right now since making the wrong decisions could result in a matter of life and death and this involves millions of lives and economies at stake. 

South Korea Jumps to World's #2 in COVID-19 Confirmed Cases - Why?

Equity Bottom-Up

Hyundai Greenfood has been a big underperformer with its stock price down nearly 60% in since August 2015. However, there are three main catalysts with Hyundai Greenfood which could result in the share price outperforming the market in the next 12 months. The three main catalysts are as follows:1) Chairman Chung increasing stake - Chung Kyo-Sun, the Chairman of Hyundai Greenfood, purchased 0.6 million shares of <a href="https://www.smartkarma.com/entities/hyundai-greenfood-co-ltd" target="_blank" data-smartkarma-citation="entities:19560:1" rel="noopener">t</a>he company worth 7.5 billion won this year (including in recent days), raising his stake in Hyundai Greenfood to 23.67% as of November 20, 2019, up from 23.0% at the end of 2018. 2) An eventual stock swap between Chung Ji-Sun (older brother) &amp; Hyundai Greenfood/Hyundai Dept Store - One of the likely scenarios of the two brothers is for Chung Ji-Sun (older brother) to swap his 12.7% stake in Hyundai Greenfood with Hyundai Greenfood's 12.05% stake in <a href="https://www.smartkarma.com/entities/hyundai-dept-store-co" target="_blank" data-smartkarma-citation="entities:19098:1" rel="noopener">Hyundai Dept Store Co (069960 KS) </a>. 3) Big relief from much lower minimum wages starting 2020<div class="content-highlight">Hyundai Greenfood shares have very cheap valuations. The company has a negative EV/EBITDA multiple. At end of 3Q19, it had net cash (including treasury shares) of 416 billion won, long-term financial investments of 456 billion won, and long term investments in affiliates of 496 billion won. It currently has a market cap of 1.1 trillion won. </div>

Hyundai Greenfood has been a big underperformer with its stock price down nearly 60% in since August 2015. However, there are three main catalysts with Hyundai Greenfood which could result in the share price outperforming the market in the next 12 months. The three main catalysts are as follows:1) Chairman Chung increasing stake - Chung Kyo-Sun, the Chairman of Hyundai Greenfood, purchased 0.6 million shares of the company worth 7.5 billion won this year (including in recent days), raising his stake in Hyundai Greenfood to 23.67% as of November 20, 2019, up from 23.0% at the end of 2018. 2) An eventual stock swap between Chung Ji-Sun (older brother) &amp; Hyundai Greenfood/Hyundai Dept Store - One of the likely scenarios of the two brothers is for Chung Ji-Sun (older brother) to swap his 12.7% stake in Hyundai Greenfood with Hyundai Greenfood's 12.05% stake in Hyundai Dept Store Co (069960 KS) . 3) Big relief from much lower minimum wages starting 2020Hyundai Greenfood shares have very cheap valuations. The company has a negative EV/EBITDA multiple. At end of 3Q19, it had net cash (including treasury shares) of 416 billion won, long-term financial investments of 456 billion won, and long term investments in affiliates of 496 billion won. It currently has a market cap of 1.1 trillion won. 

Hyundai Greenfood - Three Major Catalysts

Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Thematic (Sector/Industry)

The number of Chinese visitors to Korea has been recovering since Q2 this year following a sharp drop in 2017 related to the THAAD-controversy, which raised political tensions between the North Asian neighbors. In the first nine months of the year, Chinese visitors to Korea increased 9.4% Y/Y, virtually identical to overall growth of foreign visitors to Korea (+9.3% YT September).
Overall spending by visitors to Korea is also up so far this year: aggregate receipts from foreign visitors were up 16% through September, and average spending per visitor climbed by 5.8% in the same period. 
But while visitation and overall spending are both up YTD, a closer look at the numbers shows a sudden and dramatic decline in tourist spending per capita in August and September. We believe this may be directly tied to Chinese government efforts to limit 代购 ('daigou') activity, which involves Chinese tourists bringing home luxury goods like clothing and cosmetics for resale in China. Ultimately, we believe the Chinese efforts to rein in 'daigou' activity are driven by a desire to support the RMB, which began weakening in Q2 this year.
Key conclusion: Through its 'soft' policies, Chinese authorities are putting brakes on outbound tourism and overseas tourist spending, which is negative for regions and companies that benefit from previously free-spending Chinese tourists. In the near-term, we expect companies focused on domestic Chinese tourism activity to perform better than those exposed to outbound Chinese travel.
Interested readers should check out <a href="https://www.smartkarma.com/profiles/342" target="_blank" data-smartkarma-citation="accounts:342">Douglas Kim</a>'s notes on the 'daigou' phenomenon: <a href="https://www.smartkarma.com/insights/china-s-stricter-border-controls-and-efforts-to-crack-down-on-daigou" target="_blank" data-smartkarma-citation="insights:24759">China's Stricter Border Controls and Efforts to Crack Down on Daigou?</a> and <a href="https://www.smartkarma.com/insights/china-starts-to-loosen-its-ban-on-group-tours-to-korea-turn-positive-on-beaten-down-thaad-stocks" target="_blank" data-smartkarma-citation="insights:14736">China Starts to Loosen Its Ban on Group Tours to Korea: Turn Positive on Beaten Down THAAD Stocks</a>.

The number of Chinese visitors to Korea has been recovering since Q2 this year following a sharp drop in 2017 related to the THAAD-controversy, which raised political tensions between the North Asian neighbors. In the first nine months of the year, Chinese visitors to Korea increased 9.4% Y/Y, virtually identical to overall growth of foreign visitors to Korea (+9.3% YT September).
Overall spending by visitors to Korea is also up so far this year: aggregate receipts from foreign visitors were up 16% through September, and average spending per visitor climbed by 5.8% in the same period. 
But while visitation and overall spending are both up YTD, a closer look at the numbers shows a sudden and dramatic decline in tourist spending per capita in August and September. We believe this may be directly tied to Chinese government efforts to limit 代购 ('daigou') activity, which involves Chinese tourists bringing home luxury goods like clothing and cosmetics for resale in China. Ultimately, we believe the Chinese efforts to rein in 'daigou' activity are driven by a desire to support the RMB, which began weakening in Q2 this year.
Key conclusion: Through its 'soft' policies, Chinese authorities are putting brakes on outbound tourism and overseas tourist spending, which is negative for regions and companies that benefit from previously free-spending Chinese tourists. In the near-term, we expect companies focused on domestic Chinese tourism activity to perform better than those exposed to outbound Chinese travel.
Interested readers should check out Douglas Kim's notes on the 'daigou' phenomenon: China's Stricter Border Controls and Efforts to Crack Down on Daigou? and China Starts to Loosen Its Ban on Group Tours to Korea: Turn Positive on Beaten Down THAAD Stocks. 

Aug-Sep Numbers Show Tourist Spending in Korea Slowed | Confirms Chinese 代购 ('daigou') Crackdown?

South Korea

Hyundai Department Store Co., Ltd. operates department stores under the name of Hyundai Department over nationwide.  The Company also produces home shopping programs for cable channels and sells merchandise through home shopping programs.

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Hyundai Dept Store Co (069960 KS)

Korea Pair Trade Idea: 6 Closely Correlated & Cointegrated Sector Pairs

This post discusses the 6 closely correlated and cointegrated sector pairs in Korea in the light of the short-selling resumption starting this week.

Sanghyun Park

Korea M&A Spotlight: SKC to Sell Its 27.9% Stake of SK Bioland to Hyundai Dept Store Group?

After the market today, it was reported in Hankyung Business Daily that the Hyundai Dept Store Group is in the process of trying to acquire a 27.9%...

Douglas Kim

South Korea Jumps to World's #2 in COVID-19 Confirmed Cases - Why?

South Korea shockingly jumped to the world's number two rank in the COVID-19 confirmed cases this week, up from number six only a few days ago. The...

Douglas Kim

Hyundai Greenfood - Three Major Catalysts

Hyundai Greenfood has been a big underperformer with its stock price down nearly 60% in since August 2015. However, there are three main catalysts...

Douglas Kim

Aug-Sep Numbers Show Tourist Spending in Korea Slowed | Confirms Chinese 代购 ('daigou') Crackdown?

The number of Chinese visitors to Korea has been recovering since Q2 this year following a sharp drop in 2017 related to the THAAD-controversy,...

Daniel Hellberg

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