Correlation Between Reading International and Madison Square

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

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

Diversification Opportunities for Reading International and Madison Square

-0.79

Correlation Coefficient

Reading International  Madison Square

Pay attention - limited upside

The 3 months correlation between Reading and Madison is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Reading International and Madison Square Garden in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Madison Square Garden and Reading International 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 Reading International are associated (or correlated) with Madison Square. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Madison Square Garden has no effect on the direction of Reading International i.e., Reading International and Madison Square go up and down completely randomly.

Pair Corralation between Reading International and Madison Square

Considering the 90-day investment horizon Reading International is expected to under-perform the Madison Square. In addition to that, Reading International is 4.56 times more volatile than Madison Square Garden. It trades about -0.03 of its total potential returns per unit of risk. Madison Square Garden is currently generating about 0.19 per unit of volatility. If you would invest  20,542  in Madison Square Garden on September 2, 2024 and sell it today you would earn a total of  2,453  from holding Madison Square Garden or generate 11.94% return on investment over 90 days.

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

Reading International  vs.  Madison Square Garden

Reading International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Reading International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

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. In spite of comparatively conflicting technical and fundamental indicators, Madison Square may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Reading International and Madison Square

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

The idea behind Reading International and Madison Square Garden 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.