Correlation Between Addus HomeCare and Playmates Toys

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

By analyzing existing cross correlation between Addus HomeCare and Playmates Toys Limited, you can compare the effects of market volatilities on Addus HomeCare and Playmates Toys 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 Addus HomeCare with a short position of Playmates Toys. Check out your portfolio center. Please also check ongoing floating volatility patterns of Addus HomeCare and Playmates Toys.

Diversification Opportunities for Addus HomeCare and Playmates Toys

0.13

Correlation Coefficient

Addus HomeCare  Playmates Toys

Average diversification

The 3 months correlation between Addus and Playmates is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Addus HomeCare and Playmates Toys Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Playmates Toys and Addus HomeCare 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 Addus HomeCare are associated (or correlated) with Playmates Toys. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Playmates Toys has no effect on the direction of Addus HomeCare i.e., Addus HomeCare and Playmates Toys go up and down completely randomly.

Pair Corralation between Addus HomeCare and Playmates Toys

Assuming the 90 days horizon Addus HomeCare is expected to generate 0.35 times more return on investment than Playmates Toys. However, Addus HomeCare is 2.84 times less risky than Playmates Toys. It trades about 0.09 of its potential returns per unit of risk. Playmates Toys Limited is currently generating about -0.03 per unit of risk. If you would invest  11,900  in Addus HomeCare on October 22, 2024 and sell it today you would earn a total of  1,300  from holding Addus HomeCare or generate 10.92% return on investment over 90 days.

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

Addus HomeCare  vs.  Playmates Toys Limited

Addus HomeCare

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Addus HomeCare are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Addus HomeCare may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Playmates Toys

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Playmates Toys Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Addus HomeCare and Playmates Toys

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

The idea behind Addus HomeCare and Playmates Toys Limited 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.