Correlation Between Take Two and Square Enix

Can any of the company-specific risk be diversified away by investing in both Take Two and Square Enix 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 Take Two and Square Enix into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Take Two Interactive Software and Square Enix Holdings, you can compare the effects of market volatilities on Take Two and Square Enix 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 Take Two with a short position of Square Enix. Check out your portfolio center. Please also check ongoing floating volatility patterns of Take Two and Square Enix.

Diversification Opportunities for Take Two and Square Enix

0.88

Correlation Coefficient

Take Two  Square Enix

Very poor diversification

The 3 months correlation between Take and Square is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Take Two Interactive Software and Square Enix Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Square Enix Holdings and Take Two 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 Take Two Interactive Software are associated (or correlated) with Square Enix. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Square Enix Holdings has no effect on the direction of Take Two i.e., Take Two and Square Enix go up and down completely randomly.

Pair Corralation between Take Two and Square Enix

Given the investment horizon of 90 days Take Two is expected to generate 1.17 times less return on investment than Square Enix. But when comparing it to its historical volatility, Take Two Interactive Software is 1.02 times less risky than Square Enix. It trades about 0.11 of its potential returns per unit of risk. Square Enix Holdings is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,818  in Square Enix Holdings on December 25, 2024 and sell it today you would earn a total of  327.00  from holding Square Enix Holdings or generate 17.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	93.65%
Values	Daily Returns

Take Two Interactive Software  vs.  Square Enix Holdings

Take Two Interactive

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Take Two Interactive Software are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, Take Two displayed solid returns over the last few months and may actually be approaching a breakup point.

Square Enix Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Square Enix Holdings are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Square Enix showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Take Two and Square Enix

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

The idea behind Take Two Interactive Software and Square Enix Holdings 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.