Correlation Between SM Entertainment and Bookook Steel

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

Diversification Opportunities for SM Entertainment and Bookook Steel

-0.67

Correlation Coefficient

SM Entertainment  Bookook Steel

Excellent diversification

The 3 months correlation between 041510 and Bookook is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding SM Entertainment Co and Bookook Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bookook Steel 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 Bookook Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bookook Steel has no effect on the direction of SM Entertainment i.e., SM Entertainment and Bookook Steel go up and down completely randomly.

Pair Corralation between SM Entertainment and Bookook Steel

Assuming the 90 days trading horizon SM Entertainment Co is expected to under-perform the Bookook Steel. In addition to that, SM Entertainment is 1.11 times more volatile than Bookook Steel. It trades about -0.12 of its total potential returns per unit of risk. Bookook Steel is currently generating about 0.12 per unit of volatility. If you would invest  237,500  in Bookook Steel on September 26, 2024 and sell it today you would earn a total of  14,500  from holding Bookook Steel or generate 6.11% return on investment over 90 days.

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

SM Entertainment Co  vs.  Bookook Steel

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.

Bookook Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bookook Steel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Bookook Steel is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with SM Entertainment and Bookook Steel

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

The idea behind SM Entertainment Co and Bookook Steel 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.