Correlation Between Toys R and Lynas Rare
Can any of the company-specific risk be diversified away by investing in both Toys R and Lynas Rare 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 Toys R and Lynas Rare into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Toys R Us and Lynas Rare Earths, you can compare the effects of market volatilities on Toys R and Lynas Rare 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 Toys R with a short position of Lynas Rare. Check out your portfolio center. Please also check ongoing floating volatility patterns of Toys R and Lynas Rare.
Diversification Opportunities for Toys R and Lynas Rare
-0.1 | Correlation Coefficient |
Good diversification
The 3 months correlation between Toys and Lynas is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Toys R Us and Lynas Rare Earths in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lynas Rare Earths and Toys R 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 Toys R Us are associated (or correlated) with Lynas Rare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lynas Rare Earths has no effect on the direction of Toys R i.e., Toys R and Lynas Rare go up and down completely randomly.
Pair Corralation between Toys R and Lynas Rare
Assuming the 90 days trading horizon Toys R Us is expected to generate 3.55 times more return on investment than Lynas Rare. However, Toys R is 3.55 times more volatile than Lynas Rare Earths. It trades about -0.04 of its potential returns per unit of risk. Lynas Rare Earths is currently generating about -0.36 per unit of risk. If you would invest 5.60 in Toys R Us on September 2, 2024 and sell it today you would lose (0.40) from holding Toys R Us or give up 7.14% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Toys R Us vs. Lynas Rare Earths
Performance |
| Timeline |
| Toys R Us |
| Lynas Rare Earths |
Toys R and Lynas Rare Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Toys R and Lynas Rare
The main advantage of trading using opposite Toys R and Lynas Rare positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Toys R position performs unexpectedly, Lynas Rare 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 Lynas Rare will offset losses from the drop in Lynas Rare's long position.| Toys R vs. iShares Global Healthcare | Toys R vs. Australian Dairy Farms | Toys R vs. Adriatic Metals Plc | Toys R vs. Australian Agricultural |
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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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
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