Correlation Between Design and SM Entertainment

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

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

Diversification Opportunities for Design and SM Entertainment

0.0

Correlation Coefficient

Design  SM Entertainment

Pay attention - limited upside

The 3 months correlation between Design and 041510 is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Design 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 Design 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 Design 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 Design i.e., Design and SM Entertainment go up and down completely randomly.

Pair Corralation between Design and SM Entertainment

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	Flat
Strength	Insignificant
Accuracy	1.64%
Values	Daily Returns

Design Co  vs.  SM Entertainment Co

Design

Risk-Adjusted Performance

0 of 100

Very Weak

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

The main advantage of trading using opposite Design and SM Entertainment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Design 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 Design 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.