Correlation Between Total Soft and SM Entertainment

Can any of the company-specific risk be diversified away by investing in both Total Soft and SM 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 Total Soft and SM Entertainment into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Total Soft Bank and SM Entertainment Co, you can compare the effects of market volatilities on Total Soft and SM 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 Total Soft with a short position of SM Entertainment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Total Soft and SM Entertainment.

Diversification Opportunities for Total Soft and SM Entertainment

0.16

Correlation Coefficient

Total Soft  SM Entertainment

Average diversification

The 3 months correlation between Total and 041510 is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Total Soft Bank and SM Entertainment Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Entertainment and Total Soft 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 Total Soft Bank are associated (or correlated) with SM Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SM Entertainment has no effect on the direction of Total Soft i.e., Total Soft and SM Entertainment go up and down completely randomly.

Pair Corralation between Total Soft and SM Entertainment

Assuming the 90 days trading horizon Total Soft Bank is expected to generate 4.56 times more return on investment than SM Entertainment. However, Total Soft is 4.56 times more volatile than SM Entertainment Co. It trades about 0.35 of its potential returns per unit of risk. SM Entertainment Co is currently generating about -0.19 per unit of risk. If you would invest  489,000  in Total Soft Bank on October 4, 2024 and sell it today you would earn a total of  549,000  from holding Total Soft Bank or generate 112.27% return on investment over 90 days.

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

Total Soft Bank  vs.  SM Entertainment Co

Total Soft Bank

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Total Soft Bank are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Total Soft sustained solid returns over the last few months and may actually be approaching a breakup point.

SM Entertainment

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SM Entertainment Co are ranked lower than 4 (%) 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.

Pair Trading with Total Soft and SM Entertainment

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

The idea behind Total Soft Bank and SM Entertainment Co 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.