Correlation Between Electronic Arts and CarGurus
Can any of the company-specific risk be diversified away by investing in both Electronic Arts and CarGurus 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 Electronic Arts and CarGurus into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Electronic Arts and CarGurus, you can compare the effects of market volatilities on Electronic Arts and CarGurus 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 Electronic Arts with a short position of CarGurus. Check out your portfolio center. Please also check ongoing floating volatility patterns of Electronic Arts and CarGurus.
Diversification Opportunities for Electronic Arts and CarGurus
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Electronic and CarGurus is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Electronic Arts and CarGurus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarGurus and Electronic Arts 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 Electronic Arts are associated (or correlated) with CarGurus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CarGurus has no effect on the direction of Electronic Arts i.e., Electronic Arts and CarGurus go up and down completely randomly.
Pair Corralation between Electronic Arts and CarGurus
Allowing for the 90-day total investment horizon Electronic Arts is expected to generate 4.18 times less return on investment than CarGurus. But when comparing it to its historical volatility, Electronic Arts is 2.05 times less risky than CarGurus. It trades about 0.05 of its potential returns per unit of risk. CarGurus is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 1,259 in CarGurus on August 24, 2024 and sell it today you would earn a total of 2,303 from holding CarGurus or generate 182.92% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Electronic Arts vs. CarGurus
Performance |
| Timeline |
| Electronic Arts |
| CarGurus |
Electronic Arts and CarGurus Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Electronic Arts and CarGurus
The main advantage of trading using opposite Electronic Arts and CarGurus positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Electronic Arts position performs unexpectedly, CarGurus 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 CarGurus will offset losses from the drop in CarGurus' long position.| Electronic Arts vs. Nintendo Co ADR | Electronic Arts vs. Roblox Corp | Electronic Arts vs. NetEase | Electronic Arts vs. Take Two Interactive Software |
| CarGurus vs. KAR Auction Services | CarGurus vs. Kingsway Financial Services | CarGurus vs. Driven Brands Holdings | CarGurus vs. Group 1 Automotive |
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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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