Correlation Between SM Entertainment and YG Entertainment

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

Diversification Opportunities for SM Entertainment and YG Entertainment

0.94

Correlation Coefficient

SM Entertainment  YG Entertainment

Almost no diversification

The 3 months correlation between 041510 and 122870 is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding SM Entertainment Co and YG Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on YG 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 YG Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of YG Entertainment has no effect on the direction of SM Entertainment i.e., SM Entertainment and YG Entertainment go up and down completely randomly.

Pair Corralation between SM Entertainment and YG Entertainment

Assuming the 90 days trading horizon SM Entertainment is expected to generate 1.19 times less return on investment than YG Entertainment. In addition to that, SM Entertainment is 1.01 times more volatile than YG Entertainment. It trades about 0.12 of its total potential returns per unit of risk. YG Entertainment is currently generating about 0.15 per unit of volatility. If you would invest  4,775,000  in YG Entertainment on November 29, 2024 and sell it today you would earn a total of  1,135,000  from holding YG Entertainment or generate 23.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

SM Entertainment Co  vs.  YG Entertainment

SM Entertainment

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SM Entertainment Co are ranked lower than 9 (%) 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.

YG Entertainment

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in YG Entertainment are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, YG Entertainment sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SM Entertainment and YG Entertainment

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

The idea behind SM Entertainment Co and YG 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.