Correlation Between SM Entertainment and Korea Alcohol

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

Diversification Opportunities for SM Entertainment and Korea Alcohol

0.47

Correlation Coefficient

SM Entertainment  Korea Alcohol

Very weak diversification

The 3 months correlation between 041510 and Korea is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding SM Entertainment Co and Korea Alcohol Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korea Alcohol Industrial 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 Alcohol. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Korea Alcohol Industrial has no effect on the direction of SM Entertainment i.e., SM Entertainment and Korea Alcohol go up and down completely randomly.

Pair Corralation between SM Entertainment and Korea Alcohol

Assuming the 90 days trading horizon SM Entertainment Co is expected to generate 2.86 times more return on investment than Korea Alcohol. However, SM Entertainment is 2.86 times more volatile than Korea Alcohol Industrial. It trades about 0.19 of its potential returns per unit of risk. Korea Alcohol Industrial is currently generating about 0.24 per unit of risk. If you would invest  7,589,844  in SM Entertainment Co on December 23, 2024 and sell it today you would earn a total of  2,440,156  from holding SM Entertainment Co or generate 32.15% return on investment over 90 days.

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

SM Entertainment Co  vs.  Korea Alcohol Industrial

SM Entertainment

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SM Entertainment Co are ranked lower than 14 (%) 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 Alcohol Industrial

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Korea Alcohol Industrial are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Korea Alcohol sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SM Entertainment and Korea Alcohol

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

The idea behind SM Entertainment Co and Korea Alcohol Industrial 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.