Correlation Between Electronic Arts and Align Technology
Can any of the company-specific risk be diversified away by investing in both Electronic Arts and Align Technology 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 Align Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Electronic Arts and Align Technology, you can compare the effects of market volatilities on Electronic Arts and Align Technology 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 Align Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Electronic Arts and Align Technology.
Diversification Opportunities for Electronic Arts and Align Technology
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Electronic and Align is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Electronic Arts and Align Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Align Technology 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 Align Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Align Technology has no effect on the direction of Electronic Arts i.e., Electronic Arts and Align Technology go up and down completely randomly.
Pair Corralation between Electronic Arts and Align Technology
Assuming the 90 days trading horizon Electronic Arts is expected to generate 1.63 times more return on investment than Align Technology. However, Electronic Arts is 1.63 times more volatile than Align Technology. It trades about 0.12 of its potential returns per unit of risk. Align Technology is currently generating about -0.3 per unit of risk. If you would invest 33,944 in Electronic Arts on November 29, 2024 and sell it today you would earn a total of 2,556 from holding Electronic Arts or generate 7.53% 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. Align Technology
Performance |
| Timeline |
| Electronic Arts |
| Align Technology |
Electronic Arts and Align Technology Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Electronic Arts and Align Technology
The main advantage of trading using opposite Electronic Arts and Align Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Electronic Arts position performs unexpectedly, Align Technology 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 Align Technology will offset losses from the drop in Align Technology's long position.| Electronic Arts vs. Waste Management | Electronic Arts vs. Liberty Broadband | Electronic Arts vs. Universal Health Services, | Electronic Arts vs. Healthpeak Properties |
| Align Technology vs. Marfrig Global Foods | Align Technology vs. Fidelity National Information | Align Technology vs. Automatic Data Processing | Align Technology vs. Extra Space Storage |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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