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

Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

Executive Summary:  A flattening US interest rate yield curve changed the dynamics for credit investors for most of the month of April, in complete contrast to how interest rates behaved in March. The narrative changed to one that was Treasury bond supportive, and this supported shorter-duration securities. Meanwhile yield curve flattening pushed credit spreads in the opposite direction longer out the curve.The sweet spot for total return investors moved dramatically. Investors that were positioned in higher duration bonds witnessed underperformance on a total return basis. Meanwhile, investors in lower duration bonds outperformed on a total return basis. However, as the month ended, we began to witness a return of the reflation trade with US interest rates ending the month on an upswing. May could see a repeat of March’s carry-trade performance.From a pure credit spread perspective, ignoring movements in the risk-free rate, Asia’s bank bonds had a mixed performance with one-third of the +100 bonds that we track widening during the month. Vaccine versus virus concerns led to lower economic growth projections by the market than seen in the prior month. Expectations for an unsynchronized global recovery also factored. Taken together, this would delay the much needed catch-up in credit fundamentals to match the monetary accommodation driven spread compression over the last year. As such, bond spread tightening was less ebullient while widening lessened the amount of fundamental performance needed to justify lofty spread levels.

Executive Summary:  A flattening US interest rate yield curve changed the dynamics for credit investors for most of the month of April, in complete contrast to how interest rates behaved in March. The narrative changed to one that was Treasury bond supportive, and this supported shorter-duration securities. Meanwhile yield curve flattening pushed credit spreads in the opposite direction longer out the curve.The sweet spot for total return investors moved dramatically. Investors that were positioned in higher duration bonds witnessed underperformance on a total return basis. Meanwhile, investors in lower duration bonds outperformed on a total return basis. However, as the month ended, we began to witness a return of the reflation trade with US interest rates ending the month on an upswing. May could see a repeat of March’s carry-trade performance.From a pure credit spread perspective, ignoring movements in the risk-free rate, Asia’s bank bonds had a mixed performance with one-third of the +100 bonds that we track widening during the month. Vaccine versus virus concerns led to lower economic growth projections by the market than seen in the prior month. Expectations for an unsynchronized global recovery also factored. Taken together, this would delay the much needed catch-up in credit fundamentals to match the monetary accommodation driven spread compression over the last year. As such, bond spread tightening was less ebullient while widening lessened the amount of fundamental performance needed to justify lofty spread levels.

Bank Credit Compass: Total Return Sweet Spot Moves, but May Rebound

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

Korea Investment Holdings Co, Ltd. / Equity Capital Markets

<div class="content-highlight">According to K-Bank, it gained 1.72 million new customers in 1Q 2021. This was more than the 1.57 million customers that K-Bank gained from 2018 to 2020. It is estimated about 70% of K-Bank's new customers in 2021 are young people in their 20s and 30s that are flocking to K-Bank to invest in cryptocurrencies such as Bitcoin and Ethereum at the cryptocurrency exchange Upbit, which requires the users to have an account at K-Bank to deposit or withdraw money for cryptocurrency trading.</div><a href="https://www.hankyung.com/finance/article/2021041583121" target="_blank" rel="noopener">Korea Value Asset Mgmt</a> has a 27.1% stake in Kakao Bank. Korea Value Asset Mgmt is 100% owned by Korea Investment &amp; Securities, which is also 100% owned by <a href="https://www.smartkarma.com/entities/korea-investment-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:14839:1" rel="noopener">Korea Investment Holdings Co, Ltd. (071050 KS)</a>. Thus, Korea Investment &amp; Securities directly and indirectly owns 31.8% stake in Kakao Bank. Korea Investment &amp; Securities currently has a market cap of 5.8 trillion won. If Kakao Bank is valued at 20 trillion won, a 31.8% stake in the company would be worth 6.4 trillion won, which would be worth 110% of Korea Investment &amp; Securities' market cap. Therefore, although the exact number of how many new licenses for Internet banks remains uncertain, we believe that there could be any many as 2 to 3+ new Internet banks in the next 2-3 years. It is probably no coincidence that Kakao Bank is trying to complete its IPO this year. Kakao Bank will be aiming to accelerate this IPO prior to the Korean government giving out new licenses for Internet banks this year.

According to K-Bank, it gained 1.72 million new customers in 1Q 2021. This was more than the 1.57 million customers that K-Bank gained from 2018 to 2020. It is estimated about 70% of K-Bank's new customers in 2021 are young people in their 20s and 30s that are flocking to K-Bank to invest in cryptocurrencies such as Bitcoin and Ethereum at the cryptocurrency exchange Upbit, which requires the users to have an account at K-Bank to deposit or withdraw money for cryptocurrency trading.Korea Value Asset Mgmt has a 27.1% stake in Kakao Bank. Korea Value Asset Mgmt is 100% owned by Korea Investment &amp; Securities, which is also 100% owned by Korea Investment Holdings Co, Ltd. (071050 KS). Thus, Korea Investment &amp; Securities directly and indirectly owns 31.8% stake in Kakao Bank. Korea Investment &amp; Securities currently has a market cap of 5.8 trillion won. If Kakao Bank is valued at 20 trillion won, a 31.8% stake in the company would be worth 6.4 trillion won, which would be worth 110% of Korea Investment &amp; Securities' market cap. Therefore, although the exact number of how many new licenses for Internet banks remains uncertain, we believe that there could be any many as 2 to 3+ new Internet banks in the next 2-3 years. It is probably no coincidence that Kakao Bank is trying to complete its IPO this year. Kakao Bank will be aiming to accelerate this IPO prior to the Korean government giving out new licenses for Internet banks this year. 

K-Bank Vs. Kakao Bank: A Big Change in New Customers Driven by Cryptos

Executive Summary: The narrative has changed and there is little to stand in the way of further Treasury market strength near term. This should lead to US dollar weakness and may be Emerging Market risk asset supportive. Nonetheless, we suspect that Asia will remain driven by concerns that China is tightening which could constrain investor sentiment in this market.Trading volume-, Treasury issuance- and economic data-risks were no match for short-position unwinding, data reappraisal, and Japanese investor re-entry into the Treasury bond market over the last week. Treasury yields continued their retracement, posting their biggest weekly rally since August. Furthermore, after the worst quarter since 1980, Treasuries have gained around 1% this month, paring 2021 losses to about 3.3%. We may have seen a sell-the-rumor, buy-the-fact market event occur with respect to Treasuries and the better-than-expected March economic data set.The narrative has changed to one that is Treasury bond supportive. Fixed income markets are discounting lower economic growth and price expectations. Scenarios with a declining growth rate may be increasingly discounted in the Treasury markets. With GDP growth anticipated to tail-off over the next few quarters, sustainable wage growth may not materialize. Meanwhile, supply chain bottlenecks and rising producer prices may negatively impact corporate margins rather than consumer wallets. We elaborate on each of these themes within.Against this backdrop, there are limited economic announcements which could impact the Treasury market over the next few weeks. Meanwhile, Japanese investors may find buying US$ denominated bonds attractive after hedging the currency risk. This may be risk asset supportive going forward.  We review this inside.In the bank credit markets, March’s carry trade outperformance continued to unwind as shorter-duration bonds outperformed during the week. All recent higher coupon outperformers experienced large spread declines. Even the Turkish bank credit curve behaved in a manner consistent with other bonds globally, rather than trade at a discount. We identify the winners and losers.In China, while the immediate threat of Credit Armageddon may be lower, the ultimate game plan for China Huarong Asset Management is yet to be known. As such, the market may remain skittish while trading opportunities remain amongst the other asset management companies. Please see: <a href="https://www.smartkarma.com/compose/insight/50463/China%20Huarong:%20Contagion%20Creates%20Opportunity.%20Read%20more:%20https:/skr.ma/SmFJQ" target="_blank" rel="noopener">China Huarong: Contagion Creates Opportunity</a> for more details.US banks set a high bar for performance by announcing stellar investment banking and progressively improving core banking results last week. Then they signaled that they anticipate significantly higher interest rates later this year by hitting the market for record breaking amounts. Middle East- and Asia-headquartered banks may lead the headlines next week. Amongst major European names, only Credit Suisse is scheduled to provide final Q1 results on Tuesday, 20 April. For our thoughts, please see: <a href="https://www.smartkarma.com/compose/insight/50463/Credit%20Suisse:%20Skating%20on%20a%20Thin%20Layer%20of%20Capital.%20Read%20more:%20https:/skr.ma/rGLd5" target="_blank" rel="noopener">Credit Suisse: Skating on a Thin Layer of Capital</a>.Market Outlook: Already looking past upcoming spikes in inflation and job creation, the Treasury market is repricing for lower growth and lower rates over a longer time-period. This should be risk asset supportive as the US dollar finally weakens. The risk is that of impotent monetary policy and a constrained fiscal response in a shorter than expected business cycle.

Executive Summary: The narrative has changed and there is little to stand in the way of further Treasury market strength near term. This should lead to US dollar weakness and may be Emerging Market risk asset supportive. Nonetheless, we suspect that Asia will remain driven by concerns that China is tightening which could constrain investor sentiment in this market.Trading volume-, Treasury issuance- and economic data-risks were no match for short-position unwinding, data reappraisal, and Japanese investor re-entry into the Treasury bond market over the last week. Treasury yields continued their retracement, posting their biggest weekly rally since August. Furthermore, after the worst quarter since 1980, Treasuries have gained around 1% this month, paring 2021 losses to about 3.3%. We may have seen a sell-the-rumor, buy-the-fact market event occur with respect to Treasuries and the better-than-expected March economic data set.The narrative has changed to one that is Treasury bond supportive. Fixed income markets are discounting lower economic growth and price expectations. Scenarios with a declining growth rate may be increasingly discounted in the Treasury markets. With GDP growth anticipated to tail-off over the next few quarters, sustainable wage growth may not materialize. Meanwhile, supply chain bottlenecks and rising producer prices may negatively impact corporate margins rather than consumer wallets. We elaborate on each of these themes within.Against this backdrop, there are limited economic announcements which could impact the Treasury market over the next few weeks. Meanwhile, Japanese investors may find buying US$ denominated bonds attractive after hedging the currency risk. This may be risk asset supportive going forward.  We review this inside.In the bank credit markets, March’s carry trade outperformance continued to unwind as shorter-duration bonds outperformed during the week. All recent higher coupon outperformers experienced large spread declines. Even the Turkish bank credit curve behaved in a manner consistent with other bonds globally, rather than trade at a discount. We identify the winners and losers.In China, while the immediate threat of Credit Armageddon may be lower, the ultimate game plan for China Huarong Asset Management is yet to be known. As such, the market may remain skittish while trading opportunities remain amongst the other asset management companies. Please see: China Huarong: Contagion Creates Opportunity for more details.US banks set a high bar for performance by announcing stellar investment banking and progressively improving core banking results last week. Then they signaled that they anticipate significantly higher interest rates later this year by hitting the market for record breaking amounts. Middle East- and Asia-headquartered banks may lead the headlines next week. Amongst major European names, only Credit Suisse is scheduled to provide final Q1 results on Tuesday, 20 April. For our thoughts, please see: Credit Suisse: Skating on a Thin Layer of Capital.Market Outlook: Already looking past upcoming spikes in inflation and job creation, the Treasury market is repricing for lower growth and lower rates over a longer time-period. This should be risk asset supportive as the US dollar finally weakens. The risk is that of impotent monetary policy and a constrained fiscal response in a shorter than expected business cycle.  

Bank Credit Weekly: Narrative Change Pushes Carry-Trade Unwind as Treasuries Rally

Executive Summary:  Rapidly rising interest rates present a challenge for credit to generate positive total returns. Unfortunately, the upward sloping sawtooth pattern of rising US interest rates ended the month on an upswing. Credit spreads needed to compress by as much to generate positive total returns. Only a small handful of Asia’s US$-denominated bank bonds (x-Japan) managed to generate positive total returns during the month of March. This was concentrated in a select sweet spot.Long duration, low investment grade rated, and high BB rated bonds led tightening over the month. Lower risk tolerance, as evidenced by the rating preferences, combined with duration desires to drive performance in March, as in February. One differentiating factor between March and February is the concentration amongst Thai- and South Korean-headquartered banks during March; however, these institutions are also the largest issuers of longer duration bank paper in Asia. As such, we see this as more of a duration, than a country story.From a pure credit spread perspective, ignoring movements in the risk-free rate, Asia’s bank bonds had an outstanding month with each of the +100 bonds that we track tightening during the month. Global monetary accommodation is in large part responsible for this spread compression. Credit fundamentals have yet to catch-up. Continued tightening, however, cannot be ruled out as credit tourists crowd-in and markets melt-up. Unfortunately for most, the recent tightening did not exceed the speed with which interest rates rose.Q1 2021 was a tough quarter for real money asset managers. We anticipate that US interest rates will continue to climb higher and may even accelerate their upward trajectory. If the trend is your friend and longer duration bonds continue to outperform, the risk is that of buying a bond which either has a higher level of volatility or is fully priced. With South Korean long-dated Senior Unsecured notes trading just north of 100 basis points (bps), it is hard to imagine these notes continuing to compress faster than interest rates. Asset managers may need to consider more subordinated, higher yielding notes to generate positive total returns over the near term. Investors will likely be pushed towards lower rated Additional Tier 1 (AT1) bonds in April / May to achieve positive total returns. Security selection may become more important.

Executive Summary:  Rapidly rising interest rates present a challenge for credit to generate positive total returns. Unfortunately, the upward sloping sawtooth pattern of rising US interest rates ended the month on an upswing. Credit spreads needed to compress by as much to generate positive total returns. Only a small handful of Asia’s US$-denominated bank bonds (x-Japan) managed to generate positive total returns during the month of March. This was concentrated in a select sweet spot.Long duration, low investment grade rated, and high BB rated bonds led tightening over the month. Lower risk tolerance, as evidenced by the rating preferences, combined with duration desires to drive performance in March, as in February. One differentiating factor between March and February is the concentration amongst Thai- and South Korean-headquartered banks during March; however, these institutions are also the largest issuers of longer duration bank paper in Asia. As such, we see this as more of a duration, than a country story.From a pure credit spread perspective, ignoring movements in the risk-free rate, Asia’s bank bonds had an outstanding month with each of the +100 bonds that we track tightening during the month. Global monetary accommodation is in large part responsible for this spread compression. Credit fundamentals have yet to catch-up. Continued tightening, however, cannot be ruled out as credit tourists crowd-in and markets melt-up. Unfortunately for most, the recent tightening did not exceed the speed with which interest rates rose.Q1 2021 was a tough quarter for real money asset managers. We anticipate that US interest rates will continue to climb higher and may even accelerate their upward trajectory. If the trend is your friend and longer duration bonds continue to outperform, the risk is that of buying a bond which either has a higher level of volatility or is fully priced. With South Korean long-dated Senior Unsecured notes trading just north of 100 basis points (bps), it is hard to imagine these notes continuing to compress faster than interest rates. Asset managers may need to consider more subordinated, higher yielding notes to generate positive total returns over the near term. Investors will likely be pushed towards lower rated Additional Tier 1 (AT1) bonds in April / May to achieve positive total returns. Security selection may become more important.

Bank Credit Compass: Positive Total Return Sweet Spot

South Korea

Shinhan Financial Group Co., Ltd., a holding company, provides a full range of consumer and commercial banking-related financial services.  The company's main businesses include banking, securities brokerage, trust banking, and assets management to individuals, businesses, and other financial institutions.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Shinhan Financial (055550 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

Bank Credit Compass: Total Return Sweet Spot Moves, but May Rebound

The sweet spot for total return investors moved dramatically in April. However, as the month ended, the reflation trade returned. May could see a...

Hank Calenti, CFA

K-Bank Vs. Kakao Bank: A Big Change in New Customers Driven by Cryptos

In this insight, we discuss the exploding growth of new customers at K-Bank, the IPO expectations of Kakao Bank, and the likelihood of additional...

Douglas Kim

Bank Credit Weekly: Narrative Change Pushes Carry-Trade Unwind as Treasuries Rally

The narrative has changed. There is little to stand in the way of further Treasury market strength near term. This should lead to US$ weakness and...

Hank Calenti, CFA

Bank Credit Compass: Positive Total Return Sweet Spot

The sweet spot for positive total returns seems to be in long duration, low investment grade, and high BB rated bonds. This was concentrated in...

Hank Calenti, CFA

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