Correlation Between Asia Economy and JYP Entertainment

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

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

Diversification Opportunities for Asia Economy and JYP Entertainment

0.65

Correlation Coefficient

Asia Economy  JYP Entertainment

Poor diversification

The 3 months correlation between Asia and JYP is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Asia Economy Daily and JYP Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JYP Entertainment and Asia Economy 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 Economy Daily 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 has no effect on the direction of Asia Economy i.e., Asia Economy and JYP Entertainment go up and down completely randomly.

Pair Corralation between Asia Economy and JYP Entertainment

Assuming the 90 days trading horizon Asia Economy is expected to generate 3.05 times less return on investment than JYP Entertainment. But when comparing it to its historical volatility, Asia Economy Daily is 1.41 times less risky than JYP Entertainment. It trades about 0.14 of its potential returns per unit of risk. JYP Entertainment is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  4,470,000  in JYP Entertainment on September 16, 2024 and sell it today you would earn a total of  2,960,000  from holding JYP Entertainment or generate 66.22% return on investment over 90 days.

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

Asia Economy Daily  vs.  JYP Entertainment

Asia Economy Daily

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Asia Economy Daily are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Asia Economy sustained solid returns over the last few months and may actually be approaching a breakup point.

JYP Entertainment

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in JYP Entertainment are ranked lower than 23 (%) 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 Asia Economy and JYP Entertainment

The main advantage of trading using opposite Asia Economy and JYP Entertainment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Asia Economy 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 Asia Economy Daily and JYP Entertainment 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.