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

Sanghyun Park

I investigate special situations, pairs, and index rebalancing trades in Korea.

Korea / Special Sits, Pairs, Index Rebalancing

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Clepsydra Capital

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

Event-Driven

<p>The local secondary battery sector ETF rebalancing last Friday made a huge splash on several secondary battery sector big names, including LG Chem. The ETF appeared to have increased LG Chem's index weighting, resulting in a sharp increase in the ordinary share price during the simultaneous buy and buy period 10 minutes before the close last Friday. During this 10-minute period, LG Chem surged from 2.97% to 5.33%.<span> As a result, we now have a substantial disparity in LG Chem 1P vs. Ordinary.</span></p><hr><h2>Sigma on a 20D MA</h2><p>LG Chem 1P vs. Ordinary is at -1.92σ on a 20-day moving average. This is the widest diversion since April 16, when the sigma fell to -1.93.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/212/689/original/LG+Chem+1P+vs.+Ordinary+-+Sigma+on+a+20D+MA.png?1623517910" class="editor-image img-responsive" data-smartkarma-image-id="212689"></figure></section><h2>Pref discount</h2><p>LG Chem 1P's discount to the ordinary share now sits at 55.41%, 2.83%p up from the 180-day mean and a 7.92%p increase from the 180-day low.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/212/690/original/LG+Chem+1P+vs.+Ordinary+-+Pref+discount.png?1623517934" class="editor-image img-responsive" data-smartkarma-image-id="212690"></figure></section><table class="table table-striped">
<colgroup>
<col width="70">
<col width="70">
</colgroup>
<tbody>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"LG Chem Ltd Preference Shares"}' data-sheets-formula="=R[-52]C[0]">LG Chem Ltd Preference Shares</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Current discount"}'><strong>Current discount</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.5541176470588236}' data-sheets-formula='=indirect("$E"&amp;R70C[0])'><strong>55.41%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Δ to 180-day mean"}'><strong>Δ to 180-day mean</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.02826786648363444}' data-sheets-formula='=indirect("$B"&amp;R70C[0])'><strong>2.83%p</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Δ to 180-day low"}'>Δ to 180-day low</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.07923920297454479}' data-sheets-formula='=indirect("$C"&amp;R70C[0])'>7.92%p</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Δ to 180-day high"}'>Δ to 180-day high</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.013687735963950676}' data-sheets-formula='=indirect("$D"&amp;R70C[0])'>-1.37%p</td>
</tr>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Source: KRX"}'>Source: KRX</td></tr>
</tbody>
</table>

The local secondary battery sector ETF rebalancing last Friday made a huge splash on several secondary battery sector big names, including LG Chem. The ETF appeared to have increased LG Chem's index weighting, resulting in a sharp increase in the ordinary share price during the simultaneous buy and buy period 10 minutes before the close last Friday. During this 10-minute period, LG Chem surged from 2.97% to 5.33%. As a result, we now have a substantial disparity in LG Chem 1P vs. Ordinary.Sigma on a 20D MALG Chem 1P vs. Ordinary is at -1.92σ on a 20-day moving average. This is the widest diversion since April 16, when the sigma fell to -1.93.Pref discountLG Chem 1P's discount to the ordinary share now sits at 55.41%, 2.83%p up from the 180-day mean and a 7.92%p increase from the 180-day low.





LG Chem Ltd Preference Shares

Current discount
55.41%


Δ to 180-day mean
2.83%p


Δ to 180-day low
7.92%p


Δ to 180-day high
-1.37%p

Source: KRX



LG Chem Pref Arb Trade: Capitalize on a Disparity Resulting from Index Rebalancing