Correlation Between CJ Seafood and SM Entertainment

Can any of the company-specific risk be diversified away by investing in both CJ Seafood and SM Entertainment at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining CJ Seafood and SM Entertainment into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between CJ Seafood Corp and SM Entertainment Co, you can compare the effects of market volatilities on CJ Seafood and SM Entertainment and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in CJ Seafood with a short position of SM Entertainment. Check out your portfolio center. Please also check ongoing floating volatility patterns of CJ Seafood and SM Entertainment.

Diversification Opportunities for CJ Seafood and SM Entertainment

-0.67

Correlation Coefficient

CJ Seafood  SM Entertainment

Excellent diversification

The 3 months correlation between 011150 and 041510 is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding CJ Seafood Corp and SM Entertainment Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Entertainment and CJ Seafood is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on CJ Seafood Corp are associated (or correlated) with SM Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SM Entertainment has no effect on the direction of CJ Seafood i.e., CJ Seafood and SM Entertainment go up and down completely randomly.

Pair Corralation between CJ Seafood and SM Entertainment

Assuming the 90 days trading horizon CJ Seafood is expected to generate 4.72 times less return on investment than SM Entertainment. But when comparing it to its historical volatility, CJ Seafood Corp is 1.04 times less risky than SM Entertainment. It trades about 0.0 of its potential returns per unit of risk. SM Entertainment Co is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  7,333,678  in SM Entertainment Co on October 4, 2024 and sell it today you would earn a total of  226,322  from holding SM Entertainment Co or generate 3.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

CJ Seafood Corp  vs.  SM Entertainment Co

CJ Seafood Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CJ Seafood Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

SM Entertainment

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SM Entertainment Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, SM Entertainment sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CJ Seafood and SM Entertainment

The main advantage of trading using opposite CJ Seafood and SM Entertainment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CJ Seafood position performs unexpectedly, SM Entertainment can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in SM Entertainment will offset losses from the drop in SM Entertainment's long position.

The idea behind CJ Seafood Corp and SM Entertainment Co pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the CEOs Directory module to screen CEOs from public companies around the world.