Correlation Between Toys R and Metals X

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

Diversification Opportunities for Toys R and Metals X

-0.4

Correlation Coefficient

Toys R  Metals X

Very good diversification

The 3 months correlation between Toys and Metals is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Toys R Us and Metals X in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metals X 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 Metals X. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metals X has no effect on the direction of Toys R i.e., Toys R and Metals X go up and down completely randomly.

Pair Corralation between Toys R and Metals X

Assuming the 90 days trading horizon Toys R Us is expected to under-perform the Metals X. In addition to that, Toys R is 1.46 times more volatile than Metals X. It trades about -0.08 of its total potential returns per unit of risk. Metals X is currently generating about 0.22 per unit of volatility. If you would invest  40.00  in Metals X on December 21, 2024 and sell it today you would earn a total of  25.00  from holding Metals X or generate 62.5% return on investment over 90 days.

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

Toys R Us  vs.  Metals X

Toys R Us

Risk-Adjusted Performance

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 April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Metals X

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Metals X are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Metals X unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Toys R and Metals X

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

The idea behind Toys R Us and Metals X 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.