Correlation Between Square and Etsy
Can any of the company-specific risk be diversified away by investing in both Square and Etsy 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 Square and Etsy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Square Inc and Etsy Inc, you can compare the effects of market volatilities on Square and Etsy 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 Square with a short position of Etsy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Square and Etsy.
Diversification Opportunities for Square and Etsy
Very weak diversification
The 3 months correlation between Square and Etsy is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Square Inc and Etsy Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Etsy Inc and Square 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 Square Inc are associated (or correlated) with Etsy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Etsy Inc has no effect on the direction of Square i.e., Square and Etsy go up and down completely randomly.
Pair Corralation between Square and Etsy
Assuming the 90 days horizon Square Inc is expected to generate 1.15 times more return on investment than Etsy. However, Square is 1.15 times more volatile than Etsy Inc. It trades about 0.02 of its potential returns per unit of risk. Etsy Inc is currently generating about -0.04 per unit of risk. If you would invest 7,367 in Square Inc on November 21, 2024 and sell it today you would earn a total of 679.00 from holding Square Inc or generate 9.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Square Inc vs. Etsy Inc
Performance |
| Timeline |
| Square Inc |
| Etsy Inc |
Square and Etsy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Square and Etsy
The main advantage of trading using opposite Square and Etsy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Square position performs unexpectedly, Etsy 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 Etsy will offset losses from the drop in Etsy's long position.| Square vs. Shopify | Square vs. BYD Company Limited | Square vs. PayPal Holdings | Square vs. Palantir Technologies |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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