Correlation Between Madison Square and Nikon Corp

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

By analyzing existing cross correlation between Madison Square Garden and Nikon Corp, you can compare the effects of market volatilities on Madison Square and Nikon Corp 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 Madison Square with a short position of Nikon Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Madison Square and Nikon Corp.

Diversification Opportunities for Madison Square and Nikon Corp

-0.4

Correlation Coefficient

Madison Square  Nikon Corp

Very good diversification

The 3 months correlation between Madison and Nikon is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Madison Square Garden and Nikon Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nikon Corp and Madison 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 Madison Square Garden are associated (or correlated) with Nikon Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nikon Corp has no effect on the direction of Madison Square i.e., Madison Square and Nikon Corp go up and down completely randomly.

Pair Corralation between Madison Square and Nikon Corp

Given the investment horizon of 90 days Madison Square Garden is expected to under-perform the Nikon Corp. But the stock apears to be less risky and, when comparing its historical volatility, Madison Square Garden is 1.66 times less risky than Nikon Corp. The stock trades about -0.04 of its potential returns per unit of risk. The Nikon Corp is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,031  in Nikon Corp on December 28, 2024 and sell it today you would earn a total of  22.00  from holding Nikon Corp or generate 2.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Madison Square Garden  vs.  Nikon Corp

Madison Square Garden

Risk-Adjusted Performance

Very Weak

Over the last 90 days Madison Square Garden has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Madison Square is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Nikon Corp

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nikon Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Nikon Corp is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Madison Square and Nikon Corp

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

The idea behind Madison Square Garden and Nikon Corp 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.

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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.