Correlation Between ELECTRONIC ARTS and LGI Homes
Can any of the company-specific risk be diversified away by investing in both ELECTRONIC ARTS and LGI Homes 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 LGI Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ELECTRONIC ARTS and LGI Homes, you can compare the effects of market volatilities on ELECTRONIC ARTS and LGI Homes 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 LGI Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of ELECTRONIC ARTS and LGI Homes.
Diversification Opportunities for ELECTRONIC ARTS and LGI Homes
-0.3 | Correlation Coefficient |
Very good diversification
The 3 months correlation between ELECTRONIC and LGI is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding ELECTRONIC ARTS and LGI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LGI Homes 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 LGI Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LGI Homes has no effect on the direction of ELECTRONIC ARTS i.e., ELECTRONIC ARTS and LGI Homes go up and down completely randomly.
Pair Corralation between ELECTRONIC ARTS and LGI Homes
Assuming the 90 days trading horizon ELECTRONIC ARTS is expected to generate 0.49 times more return on investment than LGI Homes. However, ELECTRONIC ARTS is 2.05 times less risky than LGI Homes. It trades about 0.05 of its potential returns per unit of risk. LGI Homes is currently generating about 0.02 per unit of risk. If you would invest 11,185 in ELECTRONIC ARTS on September 18, 2024 and sell it today you would earn a total of 3,725 from holding ELECTRONIC ARTS or generate 33.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
ELECTRONIC ARTS vs. LGI Homes
Performance |
| Timeline |
| ELECTRONIC ARTS |
| LGI Homes |
ELECTRONIC ARTS and LGI Homes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ELECTRONIC ARTS and LGI Homes
The main advantage of trading using opposite ELECTRONIC ARTS and LGI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ELECTRONIC ARTS position performs unexpectedly, LGI Homes 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 LGI Homes will offset losses from the drop in LGI Homes' long position.| ELECTRONIC ARTS vs. Apple Inc | ELECTRONIC ARTS vs. Apple Inc | ELECTRONIC ARTS vs. Apple Inc | ELECTRONIC ARTS vs. Apple Inc |
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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