Correlation Between Nintendo and Digital Bros

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

By analyzing existing cross correlation between Nintendo Co and Digital Bros SpA, you can compare the effects of market volatilities on Nintendo and Digital Bros 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 Nintendo with a short position of Digital Bros. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nintendo and Digital Bros.

Diversification Opportunities for Nintendo and Digital Bros

0.68

Correlation Coefficient

Nintendo  Digital Bros

Poor diversification

The 3 months correlation between Nintendo and Digital is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Nintendo Co and Digital Bros SpA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digital Bros SpA and Nintendo 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 Nintendo Co are associated (or correlated) with Digital Bros. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digital Bros SpA has no effect on the direction of Nintendo i.e., Nintendo and Digital Bros go up and down completely randomly.

Pair Corralation between Nintendo and Digital Bros

Assuming the 90 days trading horizon Nintendo is expected to generate 2.14 times less return on investment than Digital Bros. But when comparing it to its historical volatility, Nintendo Co is 1.06 times less risky than Digital Bros. It trades about 0.09 of its potential returns per unit of risk. Digital Bros SpA is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  837.00  in Digital Bros SpA on October 8, 2024 and sell it today you would earn a total of  317.00  from holding Digital Bros SpA or generate 37.87% return on investment over 90 days.

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

Nintendo Co  vs.  Digital Bros SpA

Nintendo

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nintendo Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Nintendo reported solid returns over the last few months and may actually be approaching a breakup point.

Digital Bros SpA

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Digital Bros SpA are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Digital Bros reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nintendo and Digital Bros

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

The idea behind Nintendo Co and Digital Bros SpA 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.