Correlation Between Embracer Group and Midsummer

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

By analyzing existing cross correlation between Embracer Group AB and Midsummer AB, you can compare the effects of market volatilities on Embracer Group and Midsummer 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 Embracer Group with a short position of Midsummer. Check out your portfolio center. Please also check ongoing floating volatility patterns of Embracer Group and Midsummer.

Diversification Opportunities for Embracer Group and Midsummer

0.29

Correlation Coefficient

Embracer Group  Midsummer

Modest diversification

The 3 months correlation between Embracer and Midsummer is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Embracer Group AB and Midsummer AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Midsummer AB and Embracer Group 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 Embracer Group AB are associated (or correlated) with Midsummer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Midsummer AB has no effect on the direction of Embracer Group i.e., Embracer Group and Midsummer go up and down completely randomly.

Pair Corralation between Embracer Group and Midsummer

Assuming the 90 days trading horizon Embracer Group is expected to generate 2.19 times less return on investment than Midsummer. But when comparing it to its historical volatility, Embracer Group AB is 1.8 times less risky than Midsummer. It trades about 0.16 of its potential returns per unit of risk. Midsummer AB is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  109.00  in Midsummer AB on September 12, 2024 and sell it today you would earn a total of  83.00  from holding Midsummer AB or generate 76.15% return on investment over 90 days.

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

Embracer Group AB  vs.  Midsummer AB

Embracer Group AB

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Embracer Group AB are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Embracer Group sustained solid returns over the last few months and may actually be approaching a breakup point.

Midsummer AB

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Midsummer AB are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Midsummer unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Embracer Group and Midsummer

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

The idea behind Embracer Group AB and Midsummer AB 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.