Correlation Between KakaoBank Corp and JYP Entertainment

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

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

Diversification Opportunities for KakaoBank Corp and JYP Entertainment

0.42

Correlation Coefficient

KakaoBank Corp  JYP Entertainment

Very weak diversification

The 3 months correlation between KakaoBank and JYP is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding KakaoBank Corp and JYP Entertainment Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JYP Entertainment Corp and KakaoBank Corp 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 KakaoBank Corp are associated (or correlated) with JYP Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JYP Entertainment Corp has no effect on the direction of KakaoBank Corp i.e., KakaoBank Corp and JYP Entertainment go up and down completely randomly.

Pair Corralation between KakaoBank Corp and JYP Entertainment

Assuming the 90 days trading horizon KakaoBank Corp is expected to under-perform the JYP Entertainment. But the stock apears to be less risky and, when comparing its historical volatility, KakaoBank Corp is 1.49 times less risky than JYP Entertainment. The stock trades about -0.26 of its potential returns per unit of risk. The JYP Entertainment Corp is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  7,120,000  in JYP Entertainment Corp on October 12, 2024 and sell it today you would lose (130,000) from holding JYP Entertainment Corp or give up 1.83% of portfolio value over 90 days.

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

KakaoBank Corp  vs.  JYP Entertainment Corp

KakaoBank Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

JYP Entertainment Corp

Risk-Adjusted Performance

13 of 100

Good

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

Pair Trading with KakaoBank Corp and JYP Entertainment

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

The idea behind KakaoBank Corp and JYP Entertainment 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.