Correlation Between SM Entertainment and Parksystems Corp

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

Diversification Opportunities for SM Entertainment and Parksystems Corp

0.05

Correlation Coefficient

SM Entertainment  Parksystems Corp

Significant diversification

The 3 months correlation between 041510 and Parksystems is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding SM Entertainment Co and Parksystems Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Parksystems Corp 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 Parksystems Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Parksystems Corp has no effect on the direction of SM Entertainment i.e., SM Entertainment and Parksystems Corp go up and down completely randomly.

Pair Corralation between SM Entertainment and Parksystems Corp

Assuming the 90 days trading horizon SM Entertainment is expected to generate 1.89 times less return on investment than Parksystems Corp. But when comparing it to its historical volatility, SM Entertainment Co is 1.26 times less risky than Parksystems Corp. It trades about 0.07 of its potential returns per unit of risk. Parksystems Corp is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  18,890,000  in Parksystems Corp on October 8, 2024 and sell it today you would earn a total of  3,810,000  from holding Parksystems Corp or generate 20.17% return on investment over 90 days.

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

SM Entertainment Co  vs.  Parksystems Corp

SM Entertainment

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SM Entertainment Co are ranked lower than 5 (%) 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.

Parksystems Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Parksystems Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Parksystems Corp sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SM Entertainment and Parksystems Corp

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

The idea behind SM Entertainment Co and Parksystems Corp 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.