Correlation Between CD Projekt and Square Enix

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

By analyzing existing cross correlation between CD Projekt SA and Square Enix Holdings, you can compare the effects of market volatilities on CD Projekt and Square Enix 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 CD Projekt with a short position of Square Enix. Check out your portfolio center. Please also check ongoing floating volatility patterns of CD Projekt and Square Enix.

Diversification Opportunities for CD Projekt and Square Enix

0.86

Correlation Coefficient

CD Projekt  Square Enix

Very poor diversification

The 3 months correlation between OTGLF and Square is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding CD Projekt SA and Square Enix Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Square Enix Holdings and CD Projekt 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 CD Projekt SA are associated (or correlated) with Square Enix. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Square Enix Holdings has no effect on the direction of CD Projekt i.e., CD Projekt and Square Enix go up and down completely randomly.

Pair Corralation between CD Projekt and Square Enix

Assuming the 90 days horizon CD Projekt SA is expected to generate 1.05 times more return on investment than Square Enix. However, CD Projekt is 1.05 times more volatile than Square Enix Holdings. It trades about 0.18 of its potential returns per unit of risk. Square Enix Holdings is currently generating about 0.12 per unit of risk. If you would invest  4,455  in CD Projekt SA on December 28, 2024 and sell it today you would earn a total of  1,322  from holding CD Projekt SA or generate 29.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.24%
Values	Daily Returns

CD Projekt SA  vs.  Square Enix Holdings

CD Projekt SA

Risk-Adjusted Performance

Good

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

Square Enix Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Square Enix Holdings are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Square Enix showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CD Projekt and Square Enix

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

The idea behind CD Projekt SA and Square Enix Holdings 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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.