Correlation Between GS Retail and SM Entertainment

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

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

Diversification Opportunities for GS Retail and SM Entertainment

0.69

Correlation Coefficient

GS Retail  SM Entertainment

Poor diversification

The 3 months correlation between 007070 and 041510 is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding GS Retail 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 GS Retail 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 GS Retail 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 GS Retail i.e., GS Retail and SM Entertainment go up and down completely randomly.

Pair Corralation between GS Retail and SM Entertainment

Assuming the 90 days trading horizon GS Retail Co is expected to under-perform the SM Entertainment. But the stock apears to be less risky and, when comparing its historical volatility, GS Retail Co is 1.01 times less risky than SM Entertainment. The stock trades about -0.12 of its potential returns per unit of risk. The SM Entertainment Co is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  6,556,208  in SM Entertainment Co on October 1, 2024 and sell it today you would earn a total of  913,792  from holding SM Entertainment Co or generate 13.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	72.13%
Values	Daily Returns

GS Retail Co  vs.  SM Entertainment Co

GS Retail

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GS Retail Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

SM Entertainment

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SM Entertainment Co are ranked lower than 7 (%) 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 GS Retail and SM Entertainment

The main advantage of trading using opposite GS Retail and SM Entertainment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GS Retail 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 GS Retail 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.

Check out your portfolio center.

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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.