Correlation Between Bank of America and Electronic Arts
Can any of the company-specific risk be diversified away by investing in both Bank of America and Electronic Arts 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 Bank of America and Electronic Arts into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bank of America and Electronic Arts, you can compare the effects of market volatilities on Bank of America and Electronic Arts 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 Bank of America with a short position of Electronic Arts. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Electronic Arts.
Diversification Opportunities for Bank of America and Electronic Arts
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Bank and Electronic is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Electronic Arts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electronic Arts and Bank of America 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 Bank of America are associated (or correlated) with Electronic Arts. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electronic Arts has no effect on the direction of Bank of America i.e., Bank of America and Electronic Arts go up and down completely randomly.
Pair Corralation between Bank of America and Electronic Arts
Considering the 90-day investment horizon Bank of America is expected to generate 1.18 times less return on investment than Electronic Arts. In addition to that, Bank of America is 1.16 times more volatile than Electronic Arts. It trades about 0.1 of its total potential returns per unit of risk. Electronic Arts is currently generating about 0.14 per unit of volatility. If you would invest 12,186 in Electronic Arts on August 31, 2024 and sell it today you would earn a total of 3,214 from holding Electronic Arts or generate 26.37% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 97.69% |
| Values | Daily Returns |
Bank of America vs. Electronic Arts
Performance |
| Timeline |
| Bank of America |
| Electronic Arts |
Bank of America and Electronic Arts Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and Electronic Arts
The main advantage of trading using opposite Bank of America and Electronic Arts positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America position performs unexpectedly, Electronic Arts 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 Electronic Arts will offset losses from the drop in Electronic Arts' long position.| Bank of America vs. RLJ Lodging Trust | Bank of America vs. Aquagold International | Bank of America vs. Stepstone Group | Bank of America vs. Morningstar Unconstrained Allocation |
| Electronic Arts vs. Nintendo Co | Electronic Arts vs. Sea Limited | Electronic Arts vs. Take Two Interactive Software | Electronic Arts vs. Superior Plus Corp |
Check out your portfolio center.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.
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