Correlation Between Shinhan Financial and Next Entertainment

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

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

Diversification Opportunities for Shinhan Financial and Next Entertainment

0.38

Correlation Coefficient

Shinhan Financial  Next Entertainment

Weak diversification

The 3 months correlation between Shinhan and Next is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Shinhan Financial Group and Next Entertainment World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Next Entertainment World and Shinhan Financial 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 Shinhan Financial Group are associated (or correlated) with Next Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Next Entertainment World has no effect on the direction of Shinhan Financial i.e., Shinhan Financial and Next Entertainment go up and down completely randomly.

Pair Corralation between Shinhan Financial and Next Entertainment

Assuming the 90 days trading horizon Shinhan Financial Group is expected to under-perform the Next Entertainment. But the stock apears to be less risky and, when comparing its historical volatility, Shinhan Financial Group is 1.23 times less risky than Next Entertainment. The stock trades about -0.1 of its potential returns per unit of risk. The Next Entertainment World is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  231,000  in Next Entertainment World on September 26, 2024 and sell it today you would lose (13,500) from holding Next Entertainment World or give up 5.84% of portfolio value over 90 days.

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

Shinhan Financial Group  vs.  Next Entertainment World

Shinhan Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shinhan Financial Group 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.

Next Entertainment World

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Shinhan Financial and Next Entertainment

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

The idea behind Shinhan Financial Group and Next Entertainment World 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.