Correlation Between SK Chemicals and Digital Multimedia

Can any of the company-specific risk be diversified away by investing in both SK Chemicals and Digital Multimedia 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 SK Chemicals and Digital Multimedia into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for SK Chemicals and Digital Multimedia

-0.71

Correlation Coefficient

SK Chemicals  Digital Multimedia

Pay attention - limited upside

The 3 months correlation between 285130 and Digital is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding SK Chemicals Co and Digital Multimedia Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digital Multimedia and SK Chemicals 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 SK Chemicals Co are associated (or correlated) with Digital Multimedia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digital Multimedia has no effect on the direction of SK Chemicals i.e., SK Chemicals and Digital Multimedia go up and down completely randomly.

Pair Corralation between SK Chemicals and Digital Multimedia

Assuming the 90 days trading horizon SK Chemicals Co is expected to under-perform the Digital Multimedia. But the stock apears to be less risky and, when comparing its historical volatility, SK Chemicals Co is 2.35 times less risky than Digital Multimedia. The stock trades about -0.05 of its potential returns per unit of risk. The Digital Multimedia Technology is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  149,000  in Digital Multimedia Technology on December 25, 2024 and sell it today you would earn a total of  51,000  from holding Digital Multimedia Technology or generate 34.23% return on investment over 90 days.

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

SK Chemicals Co  vs.  Digital Multimedia Technology

SK Chemicals

Risk-Adjusted Performance

Very Weak

Over the last 90 days SK Chemicals Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, SK Chemicals is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Digital Multimedia

Risk-Adjusted Performance

Good

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

Pair Trading with SK Chemicals and Digital Multimedia

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

The idea behind SK Chemicals Co and Digital Multimedia Technology 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.