Correlation Between Asia Technology and SM Entertainment

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

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

Diversification Opportunities for Asia Technology and SM Entertainment

-0.37

Correlation Coefficient

Asia Technology  SM Entertainment

Very good diversification

The 3 months correlation between Asia and 041510 is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Asia Technology Co and SM Entertainment Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Entertainment and Asia Technology 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 Asia Technology Co 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 Asia Technology i.e., Asia Technology and SM Entertainment go up and down completely randomly.

Pair Corralation between Asia Technology and SM Entertainment

Assuming the 90 days trading horizon Asia Technology Co is expected to under-perform the SM Entertainment. But the stock apears to be less risky and, when comparing its historical volatility, Asia Technology Co is 2.75 times less risky than SM Entertainment. The stock trades about -0.11 of its potential returns per unit of risk. The SM Entertainment Co is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  7,589,844  in SM Entertainment Co on December 23, 2024 and sell it today you would earn a total of  2,440,156  from holding SM Entertainment Co or generate 32.15% return on investment over 90 days.

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

Asia Technology Co  vs.  SM Entertainment Co

Asia Technology

Risk-Adjusted Performance

Very Weak

Over the last 90 days Asia Technology Co 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.

SM Entertainment

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SM Entertainment Co are ranked lower than 14 (%) 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.

Pair Trading with Asia Technology and SM Entertainment

The main advantage of trading using opposite Asia Technology and SM Entertainment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Asia Technology 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 Asia Technology Co 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.