Correlation Between Madison Square and Shimano

Can any of the company-specific risk be diversified away by investing in both Madison Square and Shimano 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 Shimano 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 Shimano, you can compare the effects of market volatilities on Madison Square and Shimano 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 Shimano. Check out your portfolio center. Please also check ongoing floating volatility patterns of Madison Square and Shimano.

Diversification Opportunities for Madison Square and Shimano

-0.21

Correlation Coefficient

Madison Square  Shimano

Very good diversification

The 3 months correlation between Madison and Shimano is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Madison Square Garden and Shimano in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shimano 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 Shimano. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shimano has no effect on the direction of Madison Square i.e., Madison Square and Shimano go up and down completely randomly.

Pair Corralation between Madison Square and Shimano

Given the investment horizon of 90 days Madison Square Garden is expected to under-perform the Shimano. But the stock apears to be less risky and, when comparing its historical volatility, Madison Square Garden is 1.27 times less risky than Shimano. The stock trades about -0.05 of its potential returns per unit of risk. The Shimano is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  12,875  in Shimano on December 29, 2024 and sell it today you would earn a total of  1,436  from holding Shimano or generate 11.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	93.44%
Values	Daily Returns

Madison Square Garden  vs.  Shimano

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.

Shimano

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shimano are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental indicators, Shimano reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Madison Square and Shimano

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

The idea behind Madison Square Garden and Shimano 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.