Correlation Between Weibo Corp and WEBTOON Entertainment

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

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

Diversification Opportunities for Weibo Corp and WEBTOON Entertainment

-0.01

Correlation Coefficient

Weibo Corp  WEBTOON Entertainment

Good diversification

The 3 months correlation between Weibo and WEBTOON is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Weibo Corp and WEBTOON Entertainment Common in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WEBTOON Entertainment and Weibo 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 Weibo Corp are associated (or correlated) with WEBTOON Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WEBTOON Entertainment has no effect on the direction of Weibo Corp i.e., Weibo Corp and WEBTOON Entertainment go up and down completely randomly.

Pair Corralation between Weibo Corp and WEBTOON Entertainment

Allowing for the 90-day total investment horizon Weibo Corp is expected to generate 1.27 times less return on investment than WEBTOON Entertainment. But when comparing it to its historical volatility, Weibo Corp is 1.3 times less risky than WEBTOON Entertainment. It trades about 0.18 of its potential returns per unit of risk. WEBTOON Entertainment Common is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  1,104  in WEBTOON Entertainment Common on September 4, 2024 and sell it today you would earn a total of  158.00  from holding WEBTOON Entertainment Common or generate 14.31% return on investment over 90 days.

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

Weibo Corp  vs.  WEBTOON Entertainment Common

Weibo Corp

Risk-Adjusted Performance

10 of 100

OK

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

WEBTOON Entertainment

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in WEBTOON Entertainment Common are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, WEBTOON Entertainment may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Weibo Corp and WEBTOON Entertainment

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

The idea behind Weibo Corp and WEBTOON Entertainment Common 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.