Correlation Between SM Entertainment and CU Medical

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

Diversification Opportunities for SM Entertainment and CU Medical

-0.74

Correlation Coefficient

SM Entertainment  CU Medical

Pay attention - limited upside

The 3 months correlation between 041510 and 115480 is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding SM Entertainment Co and CU Medical Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CU Medical Systems 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 CU Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CU Medical Systems has no effect on the direction of SM Entertainment i.e., SM Entertainment and CU Medical go up and down completely randomly.

Pair Corralation between SM Entertainment and CU Medical

Assuming the 90 days trading horizon SM Entertainment Co is expected to under-perform the CU Medical. In addition to that, SM Entertainment is 1.54 times more volatile than CU Medical Systems. It trades about -0.07 of its total potential returns per unit of risk. CU Medical Systems is currently generating about 0.19 per unit of volatility. If you would invest  64,000  in CU Medical Systems on September 23, 2024 and sell it today you would earn a total of  4,800  from holding CU Medical Systems or generate 7.5% 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.  CU Medical Systems

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.

CU Medical Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CU Medical Systems 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 CU Medical

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

The idea behind SM Entertainment Co and CU Medical Systems 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.

Check out your portfolio center.

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.