Correlation Between SM Entertainment and BHI

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

Diversification Opportunities for SM Entertainment and BHI

0.81

Correlation Coefficient

SM Entertainment  BHI

Very poor diversification

The 3 months correlation between 041510 and BHI is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding SM Entertainment Co and BHI Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BHI Co 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 BHI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BHI Co has no effect on the direction of SM Entertainment i.e., SM Entertainment and BHI go up and down completely randomly.

Pair Corralation between SM Entertainment and BHI

Assuming the 90 days trading horizon SM Entertainment Co is expected to under-perform the BHI. But the stock apears to be less risky and, when comparing its historical volatility, SM Entertainment Co is 1.56 times less risky than BHI. The stock trades about -0.15 of its potential returns per unit of risk. The BHI Co is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,330,000  in BHI Co on October 11, 2024 and sell it today you would earn a total of  163,000  from holding BHI Co or generate 12.26% 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.  BHI Co

SM Entertainment

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SM Entertainment Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, SM Entertainment may actually be approaching a critical reversion point that can send shares even higher in February 2025.

BHI Co

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BHI Co are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, BHI sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SM Entertainment and BHI

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

The idea behind SM Entertainment Co and BHI Co 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.