Correlation Between Square Enix and Embracer Group

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

Diversification Opportunities for Square Enix and Embracer Group

-0.33

Correlation Coefficient

Square Enix  Embracer Group

Very good diversification

The 3 months correlation between Square and Embracer is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Square Enix Holdings and Embracer Group AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Embracer Group AB 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 Embracer Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Embracer Group AB has no effect on the direction of Square Enix i.e., Square Enix and Embracer Group go up and down completely randomly.

Pair Corralation between Square Enix and Embracer Group

Assuming the 90 days horizon Square Enix is expected to generate 45.86 times less return on investment than Embracer Group. But when comparing it to its historical volatility, Square Enix Holdings is 53.09 times less risky than Embracer Group. It trades about 0.12 of its potential returns per unit of risk. Embracer Group AB is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,653  in Embracer Group AB on December 29, 2024 and sell it today you would lose (538.00) from holding Embracer Group AB or give up 32.55% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.88%
Values	Daily Returns

Square Enix Holdings  vs.  Embracer Group AB

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.

Embracer Group AB

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Embracer Group AB are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Embracer Group reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Square Enix and Embracer Group

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

The idea behind Square Enix Holdings and Embracer Group AB 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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.