Correlation Between SM Entertainment and ChipsMedia

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

Diversification Opportunities for SM Entertainment and ChipsMedia

-0.1

Correlation Coefficient

SM Entertainment  ChipsMedia

Good diversification

The 3 months correlation between 041510 and ChipsMedia is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding SM Entertainment Co and ChipsMedia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ChipsMedia 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 ChipsMedia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ChipsMedia has no effect on the direction of SM Entertainment i.e., SM Entertainment and ChipsMedia go up and down completely randomly.

Pair Corralation between SM Entertainment and ChipsMedia

Assuming the 90 days trading horizon SM Entertainment is expected to generate 1.98 times less return on investment than ChipsMedia. But when comparing it to its historical volatility, SM Entertainment Co is 1.44 times less risky than ChipsMedia. It trades about 0.05 of its potential returns per unit of risk. ChipsMedia is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,443,000  in ChipsMedia on October 11, 2024 and sell it today you would earn a total of  182,000  from holding ChipsMedia or generate 12.61% return on investment over 90 days.

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

SM Entertainment Co  vs.  ChipsMedia

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.

ChipsMedia

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ChipsMedia are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ChipsMedia sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SM Entertainment and ChipsMedia

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

The idea behind SM Entertainment Co and ChipsMedia 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.