Correlation Between KT and JYP Entertainment

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

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

Diversification Opportunities for KT and JYP Entertainment

0.68

Correlation Coefficient

KT  JYP Entertainment

Poor diversification

The 3 months correlation between KT and JYP is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding KT Corp. and JYP Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JYP Entertainment and KT 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 KT Corporation 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 KT i.e., KT and JYP Entertainment go up and down completely randomly.

Pair Corralation between KT and JYP Entertainment

Assuming the 90 days trading horizon KT is expected to generate 2.49 times less return on investment than JYP Entertainment. But when comparing it to its historical volatility, KT Corporation is 1.51 times less risky than JYP Entertainment. It trades about 0.05 of its potential returns per unit of risk. JYP Entertainment is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  6,750,000  in JYP Entertainment on September 24, 2024 and sell it today you would earn a total of  350,000  from holding JYP Entertainment or generate 5.19% return on investment over 90 days.

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

KT Corp.  vs.  JYP Entertainment

KT Corporation

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days KT Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat weak basic indicators, KT may actually be approaching a critical reversion point that can send shares even higher in January 2025.

JYP Entertainment

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in JYP Entertainment are ranked lower than 16 (%) 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 KT and JYP Entertainment

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

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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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.