Correlation Between Toys R and Stelar Metals

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

Diversification Opportunities for Toys R and Stelar Metals

0.75

Correlation Coefficient

Toys R  Stelar Metals

Poor diversification

The 3 months correlation between Toys and Stelar is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Toys R Us and Stelar Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stelar Metals 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 Stelar Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stelar Metals has no effect on the direction of Toys R i.e., Toys R and Stelar Metals go up and down completely randomly.

Pair Corralation between Toys R and Stelar Metals

Assuming the 90 days trading horizon Toys R Us is expected to under-perform the Stelar Metals. But the stock apears to be less risky and, when comparing its historical volatility, Toys R Us is 1.09 times less risky than Stelar Metals. The stock trades about -0.13 of its potential returns per unit of risk. The Stelar Metals is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  7.60  in Stelar Metals on August 31, 2024 and sell it today you would lose (1.10) from holding Stelar Metals or give up 14.47% of portfolio value over 90 days.

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

Toys R Us  vs.  Stelar Metals

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 December 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Stelar Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Stelar Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's fundamental drivers remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Toys R and Stelar Metals

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

The idea behind Toys R Us and Stelar Metals 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.