Correlation Between Toys R and Step One

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

Diversification Opportunities for Toys R and Step One

0.56

Correlation Coefficient

Toys R  Step One

Very weak diversification

The 3 months correlation between Toys and Step is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Toys R Us and Step One Clothing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Step One Clothing 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 Step One. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Step One Clothing has no effect on the direction of Toys R i.e., Toys R and Step One go up and down completely randomly.

Pair Corralation between Toys R and Step One

Assuming the 90 days trading horizon Toys R is expected to generate 9.9 times less return on investment than Step One. In addition to that, Toys R is 1.94 times more volatile than Step One Clothing. It trades about 0.0 of its total potential returns per unit of risk. Step One Clothing is currently generating about 0.09 per unit of volatility. If you would invest  25.00  in Step One Clothing on October 23, 2024 and sell it today you would earn a total of  105.00  from holding Step One Clothing or generate 420.0% return on investment over 90 days.

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

Toys R Us  vs.  Step One Clothing

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.

Step One Clothing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Step One Clothing 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.

Pair Trading with Toys R and Step One

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

The idea behind Toys R Us and Step One Clothing 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.