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

<p>LG Corp is currently in trade suspension. It will resume trading on May 27.</p><table class="table table-striped">
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<tbody>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Corporate action schedule"}'>LG Corp (003550) spinoff schedule</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Trade suspension begins"}'>Trade suspension begins</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"4/29/21"}'>4/29/21</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Trade suspensino ends"}'>Trade suspension ends</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"5/26/21"}'>5/26/21</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Re-listing"}'><strong>Re-listing</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"5/27/21"}'><strong>5/27/21</strong></td>
</tr>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Source: KRX"}'>Source: KRX</td></tr>
</tbody>
</table><div><p>The re-listing day base price is calculated as follows:</p></div><div><div><ul>
<li>Base price: (Market cap on the last trading day X Split ratio) / total shares</li>
<li>Opening price band: 50% &lt; Base price &lt; 200%</li>
</ul></div></div><div>
<p><strong>At the current market cap, LG Corp's base price comes at ₩126,500, giving a ₩19.90T market cap. LX Holdings' base price arrives at ₩25,300 with a ₩1.93T market cap.</strong></p>
<table class="table table-striped">
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<col width="100">
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<tbody>
<tr>
<td style="width: 253.636px;" data-sheets-value='{"1":2,"2":"Re-listing day base price calculation"}'>Re-listing day base price calculation</td>
<td style="text-align: right; width: 214.545px;" data-sheets-value='{"1":2,"2":"LG Corp"}'>LG Corp</td>
<td style="text-align: right; width: 213.636px;" data-sheets-value='{"1":2,"2":"LX Holdings"}'>LX Holdings</td>
</tr>
<tr>
<td style="width: 253.636px;" data-sheets-value='{"1":2,"2":"Last trading day MC"}'>Combined market cap on the last trading day</td>
<td style="text-align: right; width: 214.545px;" data-sheets-value='{"1":3,"3":21828.4770715}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula='=googlefinance(Table!R3C2, "price")*googlefinance(Table!R3C2, "shares")/1000000000'>₩21,828.5B</td>
<td style="text-align: right; width: 213.636px;" data-sheets-value='{"1":3,"3":21828.4770715}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula='=googlefinance(Table!R3C2, "price")*googlefinance(Table!R3C2, "shares")/1000000000'>₩21,828.5B</td>
</tr>
<tr>
<td style="width: 253.636px;" data-sheets-value='{"1":2,"2":"LG Corp split ratio"}'><strong>Split ratio</strong></td>
<td style="text-align: right; width: 214.545px;" data-sheets-value='{"1":3,"3":0.9115879}' data-sheets-formula="=R[13]C[-4]"><strong>0.9115879</strong></td>
<td style="text-align: right; width: 213.636px;" data-sheets-value='{"1":3,"3":0.0884121}' data-sheets-formula="=R[13]C[-4]"><strong>0.0884121</strong></td>
</tr>
<tr>
<td style="width: 253.636px;" data-sheets-value='{"1":2,"2":"LG Corp SO"}'>Total shares</td>
<td style="text-align: right; width: 214.545px;" data-sheets-value='{"1":3,"3":157300992.6783149}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula="=NAV!R[-1]C[1]">157,300,993</td>
<td style="text-align: right; width: 213.636px;" data-sheets-value='{"1":3,"3":76280691.6084255}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula="=NAV!R[-1]C[6]">76,280,692</td>
</tr>
<tr>
<td style="width: 253.636px;" data-sheets-value='{"1":2,"2":"LG Corp base price"}'><strong>Base price</strong></td>
<td style="text-align: right; width: 214.545px;" data-sheets-value='{"1":3,"3":126500.00000000001}' data-sheets-numberformat='{"1":4,"2":"[$₩-412]#,##0"}' data-sheets-formula="=R[-3]C[0]*R[-2]C[0]/R[-1]C[0]*1000000000"><strong>₩126,500</strong></td>
<td style="text-align: right; width: 213.636px;" data-sheets-value='{"1":3,"3":25300}' data-sheets-numberformat='{"1":4,"2":"[$₩-412]#,##0"}' data-sheets-formula="=R[-3]C[0]*R[-2]C[0]/R[-1]C[0]*1000000000"><strong>₩25,300</strong></td>
</tr>
<tr>
<td style="width: 253.636px;" data-sheets-value='{"1":2,"2":"- Market cap"}'><strong>- Market cap</strong></td>
<td style="text-align: right; width: 214.545px;" data-sheets-value='{"1":3,"3":19898.575573806836}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[-1]C[0]*R4C[0]/1000000000"><strong>₩19,898.6B</strong></td>
<td style="text-align: right; width: 213.636px;" data-sheets-value='{"1":3,"3":1929.901497693165}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[-1]C[0]*R4C[0]/1000000000"><strong>₩1,929.9B</strong></td>
</tr>
<tr>
<td style="width: 253.636px;" data-sheets-value='{"1":2,"2":"Opening price at 50%"}'>Opening price at 50%</td>
<td style="text-align: right; width: 214.545px;" data-sheets-value='{"1":3,"3":63250.00000000001}' data-sheets-numberformat='{"1":4,"2":"[$₩-412]#,##0"}' data-sheets-formula="=R[-2]C[0]/2">₩63,250</td>
<td style="text-align: right; width: 213.636px;" data-sheets-value='{"1":3,"3":12650}' data-sheets-numberformat='{"1":4,"2":"[$₩-412]#,##0"}' data-sheets-formula="=R[-2]C[0]/2">₩12,650</td>
</tr>
<tr>
<td style="width: 253.636px;" data-sheets-value='{"1":2,"2":"- Market cap"}'>- Market cap</td>
<td style="text-align: right; width: 214.545px;" data-sheets-value='{"1":3,"3":9949.287786903418}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[-1]C[0]*R4C[0]/1000000000">₩9,949.3B</td>
<td style="text-align: right; width: 213.636px;" data-sheets-value='{"1":3,"3":964.9507488465825}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[-1]C[0]*R4C[0]/1000000000">₩965.0B</td>
</tr>
<tr>
<td style="width: 253.636px;" data-sheets-value='{"1":2,"2":"Opening price at 200%"}'>Opening price at 200%</td>
<td style="text-align: right; width: 214.545px;" data-sheets-value='{"1":3,"3":253000.00000000003}' data-sheets-numberformat='{"1":4,"2":"[$₩-412]#,##0"}' data-sheets-formula="=R[-4]C[0]*2">₩253,000</td>
<td style="text-align: right; width: 213.636px;" data-sheets-value='{"1":3,"3":50600}' data-sheets-numberformat='{"1":4,"2":"[$₩-412]#,##0"}' data-sheets-formula="=R[-4]C[0]*2">₩50,600</td>
</tr>
<tr>
<td style="width: 253.636px;" data-sheets-value='{"1":2,"2":"- Market cap"}'>- Market cap</td>
<td style="text-align: right; width: 214.545px;" data-sheets-value='{"1":3,"3":39797.15114761367}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[-1]C[0]*R4C[0]/1000000000">₩39,797.2B</td>
<td style="text-align: right; width: 213.636px;" data-sheets-value='{"1":3,"3":3859.80299538633}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[-1]C[0]*R4C[0]/1000000000">₩3,859.8B</td>
</tr>
<tr><td colspan="3" rowspan="1" style="width: 723.636px;" data-sheets-value='{"1":2,"2":"Source: KRX"}'>Source: KRX</td></tr>
</tbody>
</table>
</div><hr><h2><strong>Pre-spinoff NAV</strong></h2><p><strong>The last closing price before the suspension kicked in on April 29 gives a 52.41% discount to its NAV.</strong> It is still a harsh discount, but at the same time, it is a substantial improvement from a +60% NAV discount not that long ago.</p><table class="table table-striped">
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<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"NAV (₩B)"}' data-sheets-note="Sang Hyun Park: Cases when a company's net cash position and the value of its publically traded interests are worth more than its market cap create the opportunity of a stub trade, in which investors can take a view that the company's core business will rise by shorting the minority stakes whilst going long the underlying. Such an opportunity has arisen in the wake of the Alibaba listing which has seen early investing company Yahoo trade at a discount to the value of its stake in Alibaba.">Pre-spinoff NAV (₩B)</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Value of listed holdings"}'>Value of listed holdings</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":41626.31228257122}' data-sheets-numberformat='[null,2,"#,##0.0"]' data-sheets-formula="=SUM(R[34]C[2]:R[42]C[2])">₩41,626.3B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - % of Holdco market cap"}'>- % of Holdco market cap</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1.9069728110771385}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=R[-1]C[0]/((R[-12]C[0]*R[-15]C[0])/1000000000)">190.70%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Value of unlisted holdings"}'>Value of unlisted holdings</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":2631.699}' data-sheets-numberformat='[null,2,"#,##0.0"]' data-sheets-formula="=SUM(R[41]C[2]:R[42]C[2])">₩2,631.7B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Stub value"}'>Stub value</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-22429.53421107122}' data-sheets-numberformat='[null,2,"#,##0.0"]' data-sheets-formula="=(R[-14]C[0]*R[-17]C[0]/1000000000)-R[-3]C[0]-R[-1]C[0]">-₩22,429.5₩</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Stub value per share"}'>Stub value per share</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-129983.23558747172}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=R[-1]C[0]*1000000000/R[-18]C[0]">-₩129,983</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Value of operating assets"}'>Value of operating assets</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0}' data-sheets-numberformat='[null,2,"#,##0.0"]' data-sheets-formula="=SUM(R[60]C[2])">0.0</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"GAV"}'><strong>GAV</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44258.01128257122}' data-sheets-numberformat='[null,2,"#,##0.0"]' data-sheets-formula="=R[-6]C[0]+R[-4]C[0]+R[-1]C[0]"><strong>₩44,258.0B</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"GAV per share"}'>GAV per share</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":256483.23558747175}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=R[-1]C[0]/R[-11]C[0]*1000000000">₩256,483</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Discount to GAV (excl. treasury shares)"}'>Discount to GAV (excl. treasury shares)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.5067903767267545}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[-1]C[0]-R[-19]C[0])/R[-1]C[0]">50.68%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Holdco net cash/debt (de-consolidated)"}'>Holdco net cash/debt</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1941.8010390000002}' data-sheets-numberformat='[null,2,"#,##0.0"]' data-sheets-formula="=R[57]C[2]">₩1,941.8B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Value of pref shares"}'>Value of pref shares</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":329.8103615}' data-sheets-numberformat='[null,2,"#,##0.0"]' data-sheets-formula="=(R[-20]C[0]*R[-17]C[0])/1000000000">₩329.8B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"NAV"}'><strong>NAV</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":45870.00196007122}' data-sheets-numberformat='[null,2,"#,##0.0"]' data-sheets-formula="=R[-5]C[0]+R[-2]C[0]-R[-1]C[0]"><strong>₩45,870.0B</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"NAV per share (excl. treasury shares)"}'>NAV per share (excl. treasury shares)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":265825.0151369938}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=R[-1]C[0]/R[-16]C[0]*1000000000">₩265,825</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Discount to NAV"}'><strong>Discount to NAV</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.5241230403586817}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[-1]C[0]-R[-24]C[0])/R[-1]C[0]"><strong>52.41%</strong></td>
</tr>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Source: KRX &amp; DART","6":1}'>Source: KRX &amp; DART</td></tr>
</tbody>
</table>

LG Corp is currently in trade suspension. It will resume trading on May 27.





LG Corp (003550) spinoff schedule

Trade suspension begins
4/29/21


Trade suspension ends
5/26/21


Re-listing
5/27/21

Source: KRX

The re-listing day base price is calculated as follows:
Base price: (Market cap on the last trading day X Split ratio) / total shares
Opening price band: 50% &lt; Base price &lt; 200%

At the current market cap, LG Corp's base price comes at ₩126,500, giving a ₩19.90T market cap. LX Holdings' base price arrives at ₩25,300 with a ₩1.93T market cap.








Re-listing day base price calculation
LG Corp
LX Holdings


Combined market cap on the last trading day
₩21,828.5B
₩21,828.5B


Split ratio
0.9115879
0.0884121


Total shares
157,300,993
76,280,692


Base price
₩126,500
₩25,300


- Market cap
₩19,898.6B
₩1,929.9B


Opening price at 50%
₩63,250
₩12,650


- Market cap
₩9,949.3B
₩965.0B


Opening price at 200%
₩253,000
₩50,600


- Market cap
₩39,797.2B
₩3,859.8B

Source: KRX


Pre-spinoff NAVThe last closing price before the suspension kicked in on April 29 gives a 52.41% discount to its NAV. It is still a harsh discount, but at the same time, it is a substantial improvement from a +60% NAV discount not that long ago.





Pre-spinoff NAV (₩B)

Value of listed holdings
₩41,626.3B


- % of Holdco market cap
190.70%


Value of unlisted holdings
₩2,631.7B


Stub value
-₩22,429.5₩


Stub value per share
-₩129,983


Value of operating assets
0.0


GAV
₩44,258.0B


GAV per share
₩256,483


Discount to GAV (excl. treasury shares)
50.68%


Holdco net cash/debt
₩1,941.8B


Value of pref shares
₩329.8B


NAV
₩45,870.0B


NAV per share (excl. treasury shares)
₩265,825


Discount to NAV
52.41%

Source: KRX &amp; DART



LG Holdings Post-Spinoff NAV Discounts & Stub Synthetic Pair Trading

<p>I grouped Korea's closely correlated sector pairs within the same GICS sub-category. I applied the additional filtering: <strong>1. a market cap of ₩1T or more and 2. stocks eligible to short-selling (KOSPI 200 and KOSDAQ 150)</strong>. This grouping returns 141 sector pairs worthy of close monitoring for a long/short trade.</p><div class="content-highlight"><p><strong>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.</strong></p></div><hr><p>Below are the top 10 most correlated sector pairs above a 180-day correlation coefficient of 0.95 or higher. <strong>They are mostly cyclical stocks</strong>, which are in line with our conventional thinking that cyclical stocks have a stronger tendency to move together than growth stocks.</p><table class="table table-striped">
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<col width="200">
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<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}'><strong>0.97405</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Shipbuilding"}'><strong>Shipbuilding</strong></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}'><strong>0.97033</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Retail"}'><strong>Retail</strong></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}'><strong>0.96379</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Construction"}'><strong>Construction</strong></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}'><strong>0.96145</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Automotive"}'><strong>Automotive</strong></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}'><strong>0.95989</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Commercial bank"}'><strong>Commercial bank</strong></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}'><strong>0.95986</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"IT"}'><strong>IT</strong></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}'><strong>0.95374</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Chemical"}'><strong>Chemical</strong></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}'><strong>0.95243</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Aerospace"}'><strong>Aerospace</strong></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}'><strong>0.95174</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Steel"}'><strong>Steel</strong></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}'><strong>0.94972</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Steel"}'><strong>Steel</strong></td>
</tr>
<tr><td colspan="4" rowspan="1" data-sheets-value='{"1":2,"2":"Source: KRX"}'>Source: KRX</td></tr>
</tbody>
</table><p>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. <strong>E-Mart and Lotte Shopping</strong> top the list with a -3.27σ and a correlation coefficient of 0.85. <strong>Silicon Works/LG Electronics</strong> and <strong>BGF Retail/E-Mart</strong> follow as they are also in a heavy diversion at +2.79σ and +2.58σ, respectively. <strong>Woori Financial/KB Financial</strong> and <strong>Pan Ocean/HMM</strong> aren't far away either.</p><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"}'><strong>E-Mart Inc</strong></td>
<td data-sheets-value='{"1":2,"2":"Lotte Shopping Co Ltd"}'><strong>Lotte Shopping Co Ltd</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.8512795053699035}' data-sheets-numberformat='[null,2,"#,##0.00000",1]'><strong>0.85128</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-3.2691212591928522}' data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}'><strong>-3.27</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Silicon Works Co Ltd"}'><strong>Silicon Works Co Ltd</strong></td>
<td data-sheets-value='{"1":2,"2":"LG Electronics Inc."}'><strong>LG Electronics Inc.</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.8241051481549174}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}'><strong>0.82411</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":2.794228170493331}' data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}'><strong>2.79</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"BGF Retail Co Ltd"}'><strong>BGF Retail Co Ltd</strong></td>
<td data-sheets-value='{"1":2,"2":"E-Mart Inc"}'><strong>E-Mart Inc</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.847331528848073}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}'><strong>0.84733</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":2.5786176868102397}' data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}'><strong>2.58</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Woori Financial Group Inc"}'><strong>Woori Financial Group Inc</strong></td>
<td data-sheets-value='{"1":2,"2":"KB Financial Group Inc"}'><strong>KB Financial Group Inc</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.8451741524292201}' data-sheets-numberformat='[null,2,"#,##0.00000",1]'><strong>0.84517</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-2.465145723060455}' data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}'><strong>-2.47</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Pan Ocean Co Ltd"}'><strong>Pan Ocean Co Ltd</strong></td>
<td data-sheets-value='{"1":2,"2":"HMM Co Ltd"}'><strong>HMM Co Ltd</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.935905540581882}' data-sheets-numberformat='[null,2,"#,##0.00000",1]'><strong>0.93591</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-2.33130934144712}' data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}'><strong>-2.33</strong></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;"><p>0.87902</p></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

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

<div class="content-highlight"><p>In this insight, we highlight the closing of the pricing gaps between the major Korean holdcos and opcos, especially with the upcoming end of the ban on the short selling of shares in Korea in May. In this insight, we highlight 26 pair trades that involve Korean holdcos and opcos.</p></div><p>Just a reminder that the ban on short selling of KOSPI 200 and KOSDAQ 150 included stocks will remain in place until May 2nd and investors will be able to resume their shorting on these 350 stocks starting on May 3rd. Once this ban on short selling of stocks ends, there could be more investors that may look to add to the holdco shares and short the opco shares (especially among the pairs where the holdco shares have underperformed the opco shares in the past year). However, some of these moves have already started to take place in the past few weeks, which could reduce the overall profits on the pair trades. </p><p>Traditionally, the pair trades involving Korean holdcos and opcos have been a trading strategy that many hedge funds have employed for many years. However, the ban on short selling of stocks in Korea have prevented many of these funds from employing these pair trade strategies. Once the ban ends, you will likely see these funds becoming more active in these trading methods once again. </p><div class="content-highlight">
<p>In the section below, we separated the pair trades into two different sections. The first table involves major opcos outperforming holdcos (regular and quasi) in the past year. Of the 26 pair trade strategies mentioned in this insight, this section I involves 19 of them (73% of total). The section II (which involve holdcos outperforming the opcos in the past year) involves 7 pair trade strategies (27% of total).</p>
<p>In other words, the opcos in general have vastly outperformed the holdcos in the past year, especially due to the ban on the short selling of stocks in Korea. Because the opcos tend to be the bigger company than the holdcos in terms of market cap, many fund managers (both active and passive) have tended to just invest in the opcos and pay less attention to the holdcos.  </p>
</div><p>Also, we described the holdcos as either regular or quasi. SK Telecom and Samsung C&amp;T would be examples of "quasi" holdcos whereas Orion Holdings and Hanjin Kal would be examples of regular holdcos. </p>

In this insight, we highlight the closing of the pricing gaps between the major Korean holdcos and opcos, especially with the upcoming end of the ban on the short selling of shares in Korea in May. In this insight, we highlight 26 pair trades that involve Korean holdcos and opcos.Just a reminder that the ban on short selling of KOSPI 200 and KOSDAQ 150 included stocks will remain in place until May 2nd and investors will be able to resume their shorting on these 350 stocks starting on May 3rd. Once this ban on short selling of stocks ends, there could be more investors that may look to add to the holdco shares and short the opco shares (especially among the pairs where the holdco shares have underperformed the opco shares in the past year). However, some of these moves have already started to take place in the past few weeks, which could reduce the overall profits on the pair trades. Traditionally, the pair trades involving Korean holdcos and opcos have been a trading strategy that many hedge funds have employed for many years. However, the ban on short selling of stocks in Korea have prevented many of these funds from employing these pair trade strategies. Once the ban ends, you will likely see these funds becoming more active in these trading methods once again. 
In the section below, we separated the pair trades into two different sections. The first table involves major opcos outperforming holdcos (regular and quasi) in the past year. Of the 26 pair trade strategies mentioned in this insight, this section I involves 19 of them (73% of total). The section II (which involve holdcos outperforming the opcos in the past year) involves 7 pair trade strategies (27% of total).
In other words, the opcos in general have vastly outperformed the holdcos in the past year, especially due to the ban on the short selling of stocks in Korea. Because the opcos tend to be the bigger company than the holdcos in terms of market cap, many fund managers (both active and passive) have tended to just invest in the opcos and pay less attention to the holdcos.  
Also, we described the holdcos as either regular or quasi. SK Telecom and Samsung C&amp;T would be examples of "quasi" holdcos whereas Orion Holdings and Hanjin Kal would be examples of regular holdcos. 

Closing the Gap: Korean Holdcos Vs. Opcos

Founder/CEO of ROK Advisory, ROK Advisory LLC

Ken S. Kim

Founder/CEO of ROK Advisory

ROK Advisory LLC

ROK is an independent research advisory firm. We guide you to minimize the information gap between foreign and local investors in Northeast Asia with a focus in Korea, Taiwan and Japan.

Independent Research Advisory Firm

Equity Bottom-Up

<p>In Korea the safest way to invest is to align your interest as a minority shareholder with those of the family?  Usually the key asset of the chaebol is apparent but what about SK Group? It seems we have an opportunity to hone in what the key asset is.</p>

In Korea the safest way to invest is to align your interest as a minority shareholder with those of the family?  Usually the key asset of the chaebol is apparent but what about SK Group? It seems we have an opportunity to hone in what the key asset is.

The Chaebol Dilemma - What's the Family Jewel(S)?

President, Vision Research

Robert C Prather Jr

President

Vision Research

Vision Research was formed in 2004 with the vision of generating the best possible fundamental analysis and investment research for smid cap US equities. In 2008, we broadened our coverage to include mid/large cap US stocks.  After researching a  few ideas outside the US each year for a number of years, we launched a dedicated non-US equity product at the end of 2015.  This was followed by the introduction of a product focused on IPOs in mid-2017.

Fundamental Insight

<p><a href="https://www.smartkarma.com/entities/samsung-electronics-co-ltd" target="_blank" data-smartkarma-citation="entities:191:1" rel="noopener">Samsung Electronics (005930 KS)</a> , <a href="https://www.smartkarma.com/entities/lg-electronics-inc" target="_blank" data-smartkarma-citation="entities:8814:1" rel="noopener">LG Electronics (066570 KS)</a>, and <a href="https://www.smartkarma.com/entities/haier-electronics-group-co" target="_blank" data-smartkarma-citation="entities:4877:1" rel="noopener">Haier Electronics Group Co (1169 HK)</a> were stealing share from <a href="https://www.smartkarma.com/entities/electrolux-ab" target="_blank" data-smartkarma-citation="entities:22351:1" rel="noopener">Electrolux AB (ELUXB SS)</a> prior to the pandemic.  After pandemic induced demand surge subsides, Vision expects these market share headwinds to revive while <a href="https://www.smartkarma.com/entities/electrolux-ab" target="_blank" data-smartkarma-citation="entities:22351:1" rel="noopener">Electrolux AB (ELUXB SS)</a> faces difficult comparisons leading to weak top line growth and rising commodity costs weigh on profits.</p>

Samsung Electronics (005930 KS) , LG Electronics (066570 KS), and Haier Electronics Group Co (1169 HK) were stealing share from Electrolux AB (ELUXB SS) prior to the pandemic.  After pandemic induced demand surge subsides, Vision expects these market share headwinds to revive while Electrolux AB (ELUXB SS) faces difficult comparisons leading to weak top line growth and rising commodity costs weigh on profits.

Electrolux (ELUXB SS): Asian Competitors, Difficult Comps, & Rising Commodity Costs Create Headwinds

South Korea

LG Electronics Inc. manufactures and markets digital display equipment and home appliances. The Company produces and markets flat panel televisions, A/V products, washing machines, air conditioners and refrigerators as well as telecommunications equipment such as smart phones and tablets.

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LG Electronics (066570 KS)

LG Holdings Post-Spinoff NAV Discounts & Stub Synthetic Pair Trading

This post investigates the discounts to the NAV for pre and post-spinoff LG Holdings entities and discusses stub synthetic pair trades.

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

Closing the Gap: Korean Holdcos Vs. Opcos

In this insight, we highlight the closing of the pricing gaps between the major Korean holdcos and opcos, especially with the upcoming end of the...

Douglas Kim

The Chaebol Dilemma - What's the Family Jewel(S)?

What is the key asset of the SK Group and how should we play this over the course of time ? Here's at least what we should consider

Ken S. Kim

Electrolux (ELUXB SS): Asian Competitors, Difficult Comps, & Rising Commodity Costs Create Headwinds

Appliance manufacturer facing intense Asian competition causing weak organic revenue pre-COVID that should resume post-COVID. Difficult comps and...

Robert C Prather Jr

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