Correlation Between Soft World and International Games

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

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

Diversification Opportunities for Soft World and International Games

0.52

Correlation Coefficient

Soft World  International Games

Very weak diversification

The 3 months correlation between Soft and International is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Soft World International and International Games System in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Games and Soft World 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 Soft World International are associated (or correlated) with International Games. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Games has no effect on the direction of Soft World i.e., Soft World and International Games go up and down completely randomly.

Pair Corralation between Soft World and International Games

Assuming the 90 days trading horizon Soft World is expected to generate 1.56 times less return on investment than International Games. But when comparing it to its historical volatility, Soft World International is 1.08 times less risky than International Games. It trades about 0.05 of its potential returns per unit of risk. International Games System is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  90,000  in International Games System on March 4, 2024 and sell it today you would earn a total of  11,000  from holding International Games System or generate 12.22% return on investment over 90 days.

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

Soft World International  vs.  International Games System

Soft World International

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Soft World International are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Soft World may actually be approaching a critical reversion point that can send shares even higher in July 2024.

International Games

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in International Games System are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, International Games showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Soft World and International Games

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

The idea behind Soft World International and International Games System 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.