Correlation Between Square Enix and CD Projekt

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

By analyzing existing cross correlation between Square Enix Holdings and CD Projekt SA, you can compare the effects of market volatilities on Square Enix and CD Projekt 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 Square Enix with a short position of CD Projekt. Check out your portfolio center. Please also check ongoing floating volatility patterns of Square Enix and CD Projekt.

Diversification Opportunities for Square Enix and CD Projekt

-0.37

Correlation Coefficient

Square Enix  CD Projekt

Very good diversification

The 3 months correlation between Square and OTGLF is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Square Enix Holdings and CD Projekt SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CD Projekt SA and Square Enix 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 Square Enix Holdings are associated (or correlated) with CD Projekt. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CD Projekt SA has no effect on the direction of Square Enix i.e., Square Enix and CD Projekt go up and down completely randomly.

Pair Corralation between Square Enix and CD Projekt

Assuming the 90 days horizon Square Enix Holdings is expected to generate 1.09 times more return on investment than CD Projekt. However, Square Enix is 1.09 times more volatile than CD Projekt SA. It trades about 0.06 of its potential returns per unit of risk. CD Projekt SA is currently generating about -0.13 per unit of risk. If you would invest  1,848  in Square Enix Holdings on September 3, 2024 and sell it today you would earn a total of  152.00  from holding Square Enix Holdings or generate 8.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Square Enix Holdings  vs.  CD Projekt SA

Square Enix Holdings

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Square Enix Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Square Enix may actually be approaching a critical reversion point that can send shares even higher in January 2025.

CD Projekt SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CD Projekt SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's essential indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Square Enix and CD Projekt

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

The idea behind Square Enix Holdings and CD Projekt SA 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.