Correlation Between Mattel and Emerson Radio

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

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

Diversification Opportunities for Mattel and Emerson Radio

0.16

Correlation Coefficient

Mattel  Emerson Radio

Average diversification

The 3 months correlation between Mattel and Emerson is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Mattel Inc and Emerson Radio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerson Radio and Mattel 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 Mattel Inc are associated (or correlated) with Emerson Radio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerson Radio has no effect on the direction of Mattel i.e., Mattel and Emerson Radio go up and down completely randomly.

Pair Corralation between Mattel and Emerson Radio

Considering the 90-day investment horizon Mattel Inc is expected to generate 0.54 times more return on investment than Emerson Radio. However, Mattel Inc is 1.86 times less risky than Emerson Radio. It trades about 0.05 of its potential returns per unit of risk. Emerson Radio is currently generating about 0.02 per unit of risk. If you would invest  1,844  in Mattel Inc on December 5, 2024 and sell it today you would earn a total of  184.00  from holding Mattel Inc or generate 9.98% return on investment over 90 days.

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

Mattel Inc  vs.  Emerson Radio

Mattel Inc

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Mattel Inc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Mattel is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Emerson Radio

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Emerson Radio are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Emerson Radio displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mattel and Emerson Radio

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

The idea behind Mattel Inc and Emerson Radio 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.