Correlation Between Aristocrat Leisure and Nintendo

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

By analyzing existing cross correlation between Aristocrat Leisure Limited and Nintendo Co, you can compare the effects of market volatilities on Aristocrat Leisure and Nintendo 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 Aristocrat Leisure with a short position of Nintendo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aristocrat Leisure and Nintendo.

Diversification Opportunities for Aristocrat Leisure and Nintendo

0.75

Correlation Coefficient

Aristocrat Leisure  Nintendo

Poor diversification

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

Pair Corralation between Aristocrat Leisure and Nintendo

Assuming the 90 days horizon Aristocrat Leisure is expected to generate 1.11 times less return on investment than Nintendo. But when comparing it to its historical volatility, Aristocrat Leisure Limited is 2.11 times less risky than Nintendo. It trades about 0.17 of its potential returns per unit of risk. Nintendo Co is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,164  in Nintendo Co on September 23, 2024 and sell it today you would earn a total of  206.00  from holding Nintendo Co or generate 17.7% return on investment over 90 days.

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

Aristocrat Leisure Limited  vs.  Nintendo Co

Aristocrat Leisure

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aristocrat Leisure Limited are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Aristocrat Leisure reported solid returns over the last few months and may actually be approaching a breakup point.

Nintendo

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nintendo Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Nintendo reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aristocrat Leisure and Nintendo

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

The idea behind Aristocrat Leisure Limited and Nintendo Co 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.