Correlation Between Square Enix and Nintendo

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

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

Diversification Opportunities for Square Enix and Nintendo

0.75

Correlation Coefficient

Square Enix  Nintendo

Poor diversification

The 3 months correlation between Square and Nintendo is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Square Enix Holdings and Nintendo Co ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nintendo Co ADR and Square Enix 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 Square Enix Holdings are associated (or correlated) with Nintendo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nintendo Co ADR has no effect on the direction of Square Enix i.e., Square Enix and Nintendo go up and down completely randomly.

Pair Corralation between Square Enix and Nintendo

Assuming the 90 days horizon Square Enix is expected to generate 1.21 times less return on investment than Nintendo. In addition to that, Square Enix is 1.06 times more volatile than Nintendo Co ADR. It trades about 0.12 of its total potential returns per unit of risk. Nintendo Co ADR is currently generating about 0.15 per unit of volatility. If you would invest  1,465  in Nintendo Co ADR on December 21, 2024 and sell it today you would earn a total of  312.00  from holding Nintendo Co ADR or generate 21.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	93.65%
Values	Daily Returns

Square Enix Holdings  vs.  Nintendo Co ADR

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.

Nintendo Co ADR

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nintendo Co ADR are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Nintendo showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Square Enix and Nintendo

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

The idea behind Square Enix Holdings and Nintendo Co ADR 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 CEOs Directory module to screen CEOs from public companies around the world.