Correlation Between Toys R and Environmental Clean

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

By analyzing existing cross correlation between Toys R Us and Environmental Clean Technologies, you can compare the effects of market volatilities on Toys R and Environmental Clean 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 Toys R with a short position of Environmental Clean. Check out your portfolio center. Please also check ongoing floating volatility patterns of Toys R and Environmental Clean.

Diversification Opportunities for Toys R and Environmental Clean

-0.18

Correlation Coefficient

Toys R  Environmental Clean

Good diversification

The 3 months correlation between Toys and Environmental is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Toys R Us and Environmental Clean Technologi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Environmental Clean and Toys R 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 Toys R Us are associated (or correlated) with Environmental Clean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Environmental Clean has no effect on the direction of Toys R i.e., Toys R and Environmental Clean go up and down completely randomly.

Pair Corralation between Toys R and Environmental Clean

Assuming the 90 days trading horizon Toys R is expected to generate 4.63 times less return on investment than Environmental Clean. But when comparing it to its historical volatility, Toys R Us is 1.22 times less risky than Environmental Clean. It trades about 0.01 of its potential returns per unit of risk. Environmental Clean Technologies is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1.05  in Environmental Clean Technologies on October 7, 2024 and sell it today you would lose (0.85) from holding Environmental Clean Technologies or give up 80.95% of portfolio value over 90 days.

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

Toys R Us  vs.  Environmental Clean Technologi

Toys R Us

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Toys R Us has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Environmental Clean

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Environmental Clean Technologies are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Environmental Clean unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Toys R and Environmental Clean

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

The idea behind Toys R Us and Environmental Clean Technologies 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.