Correlation Between SM Entertainment and Korea Zinc

Can any of the company-specific risk be diversified away by investing in both SM Entertainment and Korea Zinc 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 Korea Zinc 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 Korea Zinc, you can compare the effects of market volatilities on SM Entertainment and Korea Zinc 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 Korea Zinc. Check out your portfolio center. Please also check ongoing floating volatility patterns of SM Entertainment and Korea Zinc.

Diversification Opportunities for SM Entertainment and Korea Zinc

0.8

Correlation Coefficient

SM Entertainment  Korea Zinc

Very poor diversification

The 3 months correlation between 041510 and Korea is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding SM Entertainment Co and Korea Zinc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korea Zinc 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 Korea Zinc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Korea Zinc has no effect on the direction of SM Entertainment i.e., SM Entertainment and Korea Zinc go up and down completely randomly.

Pair Corralation between SM Entertainment and Korea Zinc

Assuming the 90 days trading horizon SM Entertainment is expected to generate 2.1 times less return on investment than Korea Zinc. In addition to that, SM Entertainment is 1.45 times more volatile than Korea Zinc. It trades about 0.02 of its total potential returns per unit of risk. Korea Zinc is currently generating about 0.06 per unit of volatility. If you would invest  55,777,400  in Korea Zinc on September 4, 2024 and sell it today you would earn a total of  44,222,600  from holding Korea Zinc or generate 79.28% return on investment over 90 days.

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

SM Entertainment Co  vs.  Korea Zinc

SM Entertainment

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SM Entertainment Co are ranked lower than 19 (%) 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.

Korea Zinc

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Korea Zinc are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Korea Zinc sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SM Entertainment and Korea Zinc

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

The idea behind SM Entertainment Co and Korea Zinc 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.

Check out your portfolio center.

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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.