Correlation Between Embracer Group and Square Enix

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

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

Diversification Opportunities for Embracer Group and Square Enix

-0.33

Correlation Coefficient

Embracer Group  Square Enix

Very good diversification

The 3 months correlation between Embracer and Square is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Embracer Group AB 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 Embracer Group 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 Embracer Group AB 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 Embracer Group i.e., Embracer Group and Square Enix go up and down completely randomly.

Pair Corralation between Embracer Group and Square Enix

Assuming the 90 days horizon Embracer Group AB is expected to generate 53.1 times more return on investment than Square Enix. However, Embracer Group is 53.1 times more volatile than Square Enix Holdings. It trades about 0.1 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  1,653  in Embracer Group AB on December 27, 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	96.83%
Values	Daily Returns

Embracer Group AB  vs.  Square Enix Holdings

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.

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 Embracer Group and Square Enix

The main advantage of trading using opposite Embracer Group and Square Enix positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Embracer Group 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 Embracer Group AB 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.