Correlation Between Take Two and Bread Financial

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

By analyzing existing cross correlation between Take Two Interactive Software and Bread Financial Holdings, you can compare the effects of market volatilities on Take Two and Bread Financial 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 Take Two with a short position of Bread Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Take Two and Bread Financial.

Diversification Opportunities for Take Two and Bread Financial

0.8

Correlation Coefficient

Take Two  Bread Financial

Very poor diversification

The 3 months correlation between Take and Bread is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Take Two Interactive Software and Bread Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bread Financial Holdings and Take Two 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 Take Two Interactive Software are associated (or correlated) with Bread Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bread Financial Holdings has no effect on the direction of Take Two i.e., Take Two and Bread Financial go up and down completely randomly.

Pair Corralation between Take Two and Bread Financial

Assuming the 90 days trading horizon Take Two Interactive Software is expected to generate 0.47 times more return on investment than Bread Financial. However, Take Two Interactive Software is 2.12 times less risky than Bread Financial. It trades about 0.18 of its potential returns per unit of risk. Bread Financial Holdings is currently generating about 0.03 per unit of risk. If you would invest  23,000  in Take Two Interactive Software on August 31, 2024 and sell it today you would earn a total of  4,526  from holding Take Two Interactive Software or generate 19.68% return on investment over 90 days.

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

Take Two Interactive Software  vs.  Bread Financial Holdings

Take Two Interactive

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Take Two Interactive Software are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Take Two sustained solid returns over the last few months and may actually be approaching a breakup point.

Bread Financial Holdings

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Bread Financial Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Bread Financial may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Take Two and Bread Financial

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

The idea behind Take Two Interactive Software and Bread Financial Holdings 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.