Correlation Between Toys R and Sonic Healthcare

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

Diversification Opportunities for Toys R and Sonic Healthcare

0.42

Correlation Coefficient

Toys R  Sonic Healthcare

Very weak diversification

The 3 months correlation between Toys and Sonic is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Toys R Us and Sonic Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sonic Healthcare 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 Sonic Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sonic Healthcare has no effect on the direction of Toys R i.e., Toys R and Sonic Healthcare go up and down completely randomly.

Pair Corralation between Toys R and Sonic Healthcare

Assuming the 90 days trading horizon Toys R Us is expected to under-perform the Sonic Healthcare. In addition to that, Toys R is 5.03 times more volatile than Sonic Healthcare. It trades about -0.11 of its total potential returns per unit of risk. Sonic Healthcare is currently generating about -0.05 per unit of volatility. If you would invest  2,680  in Sonic Healthcare on December 29, 2024 and sell it today you would lose (102.00) from holding Sonic Healthcare or give up 3.81% of portfolio value over 90 days.

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

Toys R Us  vs.  Sonic Healthcare

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.

Sonic Healthcare

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sonic Healthcare has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable essential indicators, Sonic Healthcare is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Toys R and Sonic Healthcare

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

The idea behind Toys R Us and Sonic Healthcare 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.