Correlation Between SM Entertainment and Dong Il

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

By analyzing existing cross correlation between SM Entertainment Co and Dong Il Corp, you can compare the effects of market volatilities on SM Entertainment and Dong Il 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 SM Entertainment with a short position of Dong Il. Check out your portfolio center. Please also check ongoing floating volatility patterns of SM Entertainment and Dong Il.

Diversification Opportunities for SM Entertainment and Dong Il

0.62

Correlation Coefficient

SM Entertainment  Dong Il

Poor diversification

The 3 months correlation between 041510 and Dong is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding SM Entertainment Co and Dong Il Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dong Il Corp and SM Entertainment 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 SM Entertainment Co are associated (or correlated) with Dong Il. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dong Il Corp has no effect on the direction of SM Entertainment i.e., SM Entertainment and Dong Il go up and down completely randomly.

Pair Corralation between SM Entertainment and Dong Il

Assuming the 90 days trading horizon SM Entertainment Co is expected to under-perform the Dong Il. In addition to that, SM Entertainment is 1.11 times more volatile than Dong Il Corp. It trades about -0.04 of its total potential returns per unit of risk. Dong Il Corp is currently generating about 0.12 per unit of volatility. If you would invest  2,282,726  in Dong Il Corp on September 28, 2024 and sell it today you would earn a total of  2,837,274  from holding Dong Il Corp or generate 124.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.31%
Values	Daily Returns

SM Entertainment Co  vs.  Dong Il Corp

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.

Dong Il Corp

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Dong Il Corp are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dong Il sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SM Entertainment and Dong Il

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

The idea behind SM Entertainment Co and Dong Il Corp 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.