Correlation Between SM Entertainment and JYP Entertainment

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

Diversification Opportunities for SM Entertainment and JYP Entertainment

0.91

Correlation Coefficient

SM Entertainment  JYP Entertainment

Almost no diversification

The 3 months correlation between 041510 and JYP is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding SM Entertainment Co and JYP Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JYP Entertainment 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 JYP Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JYP Entertainment has no effect on the direction of SM Entertainment i.e., SM Entertainment and JYP Entertainment go up and down completely randomly.

Pair Corralation between SM Entertainment and JYP Entertainment

Assuming the 90 days trading horizon SM Entertainment is expected to generate 1.36 times less return on investment than JYP Entertainment. But when comparing it to its historical volatility, SM Entertainment Co is 1.09 times less risky than JYP Entertainment. It trades about 0.19 of its potential returns per unit of risk. JYP Entertainment is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  5,070,000  in JYP Entertainment on September 1, 2024 and sell it today you would earn a total of  2,570,000  from holding JYP Entertainment or generate 50.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.33%
Values	Daily Returns

SM Entertainment Co  vs.  JYP Entertainment

SM Entertainment

Risk-Adjusted Performance

14 of 100

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.

JYP Entertainment

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in JYP Entertainment are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, JYP Entertainment sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SM Entertainment and JYP Entertainment

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

The idea behind SM Entertainment Co and JYP Entertainment 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.