Correlation Between Energy Resources and Toys R
Can any of the company-specific risk be diversified away by investing in both Energy Resources and Toys R 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 Energy Resources and Toys R into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Energy Resources and Toys R Us, you can compare the effects of market volatilities on Energy Resources and Toys R 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 Energy Resources with a short position of Toys R. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Resources and Toys R.
Diversification Opportunities for Energy Resources and Toys R
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Energy and Toys is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Energy Resources and Toys R Us in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toys R Us and Energy Resources 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 Energy Resources are associated (or correlated) with Toys R. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toys R Us has no effect on the direction of Energy Resources i.e., Energy Resources and Toys R go up and down completely randomly.
Pair Corralation between Energy Resources and Toys R
Assuming the 90 days trading horizon Energy Resources is expected to generate 6.11 times more return on investment than Toys R. However, Energy Resources is 6.11 times more volatile than Toys R Us. It trades about 0.08 of its potential returns per unit of risk. Toys R Us is currently generating about -0.1 per unit of risk. If you would invest 0.30 in Energy Resources on September 14, 2024 and sell it today you would lose (0.10) from holding Energy Resources or give up 33.33% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Energy Resources vs. Toys R Us
Performance |
| Timeline |
| Energy Resources |
| Toys R Us |
Energy Resources and Toys R Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Energy Resources and Toys R
The main advantage of trading using opposite Energy Resources and Toys R positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Resources position performs unexpectedly, Toys R 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 Toys R will offset losses from the drop in Toys R's long position.| Energy Resources vs. Ainsworth Game Technology | Energy Resources vs. Neurotech International | Energy Resources vs. Alto Metals | Energy Resources vs. Macquarie Technology Group |
| Toys R vs. Energy Resources | Toys R vs. 88 Energy | Toys R vs. Amani Gold | Toys R vs. A1 Investments Resources |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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