Correlation Between SM Entertainment and Dongkuk Structures

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

Diversification Opportunities for SM Entertainment and Dongkuk Structures

-0.71

Correlation Coefficient

SM Entertainment  Dongkuk Structures

Pay attention - limited upside

The 3 months correlation between 041510 and Dongkuk is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding SM Entertainment Co and Dongkuk Structures Constructio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongkuk Structures 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 Dongkuk Structures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongkuk Structures has no effect on the direction of SM Entertainment i.e., SM Entertainment and Dongkuk Structures go up and down completely randomly.

Pair Corralation between SM Entertainment and Dongkuk Structures

Assuming the 90 days trading horizon SM Entertainment Co is expected to under-perform the Dongkuk Structures. In addition to that, SM Entertainment is 1.2 times more volatile than Dongkuk Structures Construction. It trades about -0.19 of its total potential returns per unit of risk. Dongkuk Structures Construction is currently generating about 0.23 per unit of volatility. If you would invest  228,000  in Dongkuk Structures Construction on October 12, 2024 and sell it today you would earn a total of  22,000  from holding Dongkuk Structures Construction or generate 9.65% 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.  Dongkuk Structures Constructio

SM Entertainment

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SM Entertainment Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, SM Entertainment is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Dongkuk Structures

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dongkuk Structures Construction has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with SM Entertainment and Dongkuk Structures

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

The idea behind SM Entertainment Co and Dongkuk Structures Construction 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.