Correlation Between SM Entertainment and KTB Investment

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

Diversification Opportunities for SM Entertainment and KTB Investment

-0.75

Correlation Coefficient

SM Entertainment  KTB Investment

Pay attention - limited upside

The 3 months correlation between 041510 and KTB is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding SM Entertainment Co and KTB Investment Securities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KTB Investment Securities 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 KTB Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KTB Investment Securities has no effect on the direction of SM Entertainment i.e., SM Entertainment and KTB Investment go up and down completely randomly.

Pair Corralation between SM Entertainment and KTB Investment

Assuming the 90 days trading horizon SM Entertainment Co is expected to generate 1.55 times more return on investment than KTB Investment. However, SM Entertainment is 1.55 times more volatile than KTB Investment Securities. It trades about 0.15 of its potential returns per unit of risk. KTB Investment Securities is currently generating about 0.02 per unit of risk. If you would invest  5,910,000  in SM Entertainment Co on September 22, 2024 and sell it today you would earn a total of  1,680,000  from holding SM Entertainment Co or generate 28.43% 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.  KTB Investment Securities

SM Entertainment

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SM Entertainment Co are ranked lower than 12 (%) 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.

KTB Investment Securities

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in KTB Investment Securities are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, KTB Investment 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 KTB Investment

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

The idea behind SM Entertainment Co and KTB Investment Securities 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.