Correlation Between United States and Playmates Toys

Can any of the company-specific risk be diversified away by investing in both United States and Playmates Toys 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 United States and Playmates Toys into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between United States Steel and Playmates Toys Limited, you can compare the effects of market volatilities on United States and Playmates Toys 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 United States with a short position of Playmates Toys. Check out your portfolio center. Please also check ongoing floating volatility patterns of United States and Playmates Toys.

Diversification Opportunities for United States and Playmates Toys

0.15

Correlation Coefficient

United States  Playmates Toys

Average diversification

The 3 months correlation between United and Playmates is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding United States Steel and Playmates Toys Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Playmates Toys and United States 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 United States Steel are associated (or correlated) with Playmates Toys. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Playmates Toys has no effect on the direction of United States i.e., United States and Playmates Toys go up and down completely randomly.

Pair Corralation between United States and Playmates Toys

Assuming the 90 days trading horizon United States Steel is expected to under-perform the Playmates Toys. But the stock apears to be less risky and, when comparing its historical volatility, United States Steel is 3.47 times less risky than Playmates Toys. The stock trades about -0.04 of its potential returns per unit of risk. The Playmates Toys Limited is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2.91  in Playmates Toys Limited on October 10, 2024 and sell it today you would earn a total of  3.69  from holding Playmates Toys Limited or generate 126.8% return on investment over 90 days.

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

United States Steel  vs.  Playmates Toys Limited

United States Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United States Steel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, United States is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Playmates Toys

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Playmates Toys Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Playmates Toys is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with United States and Playmates Toys

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

The idea behind United States Steel and Playmates Toys Limited 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.