Correlation Between Electronic Arts and Iridium Communications
Can any of the company-specific risk be diversified away by investing in both Electronic Arts and Iridium Communications 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 Iridium Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Electronic Arts and Iridium Communications, you can compare the effects of market volatilities on Electronic Arts and Iridium Communications 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 Iridium Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Electronic Arts and Iridium Communications.
Diversification Opportunities for Electronic Arts and Iridium Communications
0.31 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Electronic and Iridium is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Electronic Arts and Iridium Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iridium Communications 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 Iridium Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Iridium Communications has no effect on the direction of Electronic Arts i.e., Electronic Arts and Iridium Communications go up and down completely randomly.
Pair Corralation between Electronic Arts and Iridium Communications
Assuming the 90 days trading horizon Electronic Arts is expected to generate 0.4 times more return on investment than Iridium Communications. However, Electronic Arts is 2.5 times less risky than Iridium Communications. It trades about 0.15 of its potential returns per unit of risk. Iridium Communications is currently generating about 0.02 per unit of risk. If you would invest 12,595 in Electronic Arts on September 3, 2024 and sell it today you would earn a total of 2,919 from holding Electronic Arts or generate 23.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.22% |
| Values | Daily Returns |
Electronic Arts vs. Iridium Communications
Performance |
| Timeline |
| Electronic Arts |
| Iridium Communications |
Electronic Arts and Iridium Communications Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Electronic Arts and Iridium Communications
The main advantage of trading using opposite Electronic Arts and Iridium Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Electronic Arts position performs unexpectedly, Iridium Communications 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 Iridium Communications will offset losses from the drop in Iridium Communications' long position.| Electronic Arts vs. TOTAL GABON | Electronic Arts vs. Walgreens Boots Alliance | Electronic Arts vs. Peak Resources Limited |
| Iridium Communications vs. Cardinal Health | Iridium Communications vs. EPSILON HEALTHCARE LTD | Iridium Communications vs. Computer And Technologies | Iridium Communications vs. Spirent Communications plc |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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