Correlation Between Embracer Group and Square Enix

Can any of the company-specific risk be diversified away by investing in both Embracer Group and Square Enix 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 Square Enix 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 Square Enix Holdings, you can compare the effects of market volatilities on Embracer Group and Square Enix 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 Square Enix. Check out your portfolio center. Please also check ongoing floating volatility patterns of Embracer Group and Square Enix.

Diversification Opportunities for Embracer Group and Square Enix

0.07

Correlation Coefficient

Embracer Group  Square Enix

Significant diversification

The 3 months correlation between Embracer and Square is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Embracer Group AB and Square Enix Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Square Enix Holdings 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 Square Enix. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Square Enix Holdings has no effect on the direction of Embracer Group i.e., Embracer Group and Square Enix go up and down completely randomly.

Pair Corralation between Embracer Group and Square Enix

Assuming the 90 days horizon Embracer Group is expected to generate 1.26 times less return on investment than Square Enix. But when comparing it to its historical volatility, Embracer Group AB is 1.2 times less risky than Square Enix. It trades about 0.05 of its potential returns per unit of risk. Square Enix Holdings is currently generating about 0.06 of returns per unit of risk over similar time horizon. 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 Together
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Embracer Group AB  vs.  Square Enix Holdings

Embracer Group AB

Risk-Adjusted Performance

4 of 100

Insignificant

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

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.

Pair Trading with Embracer Group and Square Enix

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

The idea behind Embracer Group AB and Square Enix 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.