Correlation Between Madison Square and Playtech Plc

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

By analyzing existing cross correlation between Madison Square Garden and Playtech plc, you can compare the effects of market volatilities on Madison Square and Playtech Plc 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 Madison Square with a short position of Playtech Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Madison Square and Playtech Plc.

Diversification Opportunities for Madison Square and Playtech Plc

0.43

Correlation Coefficient

Madison Square  Playtech Plc

Very weak diversification

The 3 months correlation between Madison and Playtech is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Madison Square Garden and Playtech plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Playtech plc and Madison Square 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 Madison Square Garden are associated (or correlated) with Playtech Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Playtech plc has no effect on the direction of Madison Square i.e., Madison Square and Playtech Plc go up and down completely randomly.

Pair Corralation between Madison Square and Playtech Plc

Assuming the 90 days horizon Madison Square Garden is expected to generate 0.85 times more return on investment than Playtech Plc. However, Madison Square Garden is 1.17 times less risky than Playtech Plc. It trades about 0.19 of its potential returns per unit of risk. Playtech plc is currently generating about 0.15 per unit of risk. If you would invest  18,800  in Madison Square Garden on September 2, 2024 and sell it today you would earn a total of  3,000  from holding Madison Square Garden or generate 15.96% return on investment over 90 days.

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

Madison Square Garden  vs.  Playtech plc

Madison Square Garden

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Madison Square Garden are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Madison Square reported solid returns over the last few months and may actually be approaching a breakup point.

Playtech plc

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Playtech plc are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Playtech Plc unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Madison Square and Playtech Plc

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

The idea behind Madison Square Garden and Playtech plc 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.