Correlation Between Seoul Broadcasting and JYP Entertainment

Can any of the company-specific risk be diversified away by investing in both Seoul Broadcasting and JYP 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 Seoul Broadcasting and JYP Entertainment into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Seoul Broadcasting System and JYP Entertainment, you can compare the effects of market volatilities on Seoul Broadcasting and JYP 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 Seoul Broadcasting with a short position of JYP Entertainment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Seoul Broadcasting and JYP Entertainment.

Diversification Opportunities for Seoul Broadcasting and JYP Entertainment

-0.14

Correlation Coefficient

Seoul Broadcasting  JYP Entertainment

Good diversification

The 3 months correlation between Seoul and JYP is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Seoul Broadcasting System and JYP Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JYP Entertainment and Seoul Broadcasting 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 Seoul Broadcasting System are associated (or correlated) with JYP Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JYP Entertainment has no effect on the direction of Seoul Broadcasting i.e., Seoul Broadcasting and JYP Entertainment go up and down completely randomly.

Pair Corralation between Seoul Broadcasting and JYP Entertainment

Assuming the 90 days trading horizon Seoul Broadcasting System is expected to under-perform the JYP Entertainment. But the stock apears to be less risky and, when comparing its historical volatility, Seoul Broadcasting System is 1.14 times less risky than JYP Entertainment. The stock trades about -0.05 of its potential returns per unit of risk. The JYP Entertainment is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  6,694,800  in JYP Entertainment on September 20, 2024 and sell it today you would earn a total of  535,200  from holding JYP Entertainment or generate 7.99% return on investment over 90 days.

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

Seoul Broadcasting System  vs.  JYP Entertainment

Seoul Broadcasting System

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Seoul Broadcasting System are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Seoul Broadcasting is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

JYP Entertainment

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days JYP Entertainment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat weak basic indicators, JYP Entertainment sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Seoul Broadcasting and JYP Entertainment

The main advantage of trading using opposite Seoul Broadcasting and JYP Entertainment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Seoul Broadcasting position performs unexpectedly, JYP 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 JYP Entertainment will offset losses from the drop in JYP Entertainment's long position.

The idea behind Seoul Broadcasting System and JYP Entertainment 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.