Correlation Between North American and ELECTRONIC ARTS
Can any of the company-specific risk be diversified away by investing in both North American 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 North American and ELECTRONIC ARTS into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between North American Construction and ELECTRONIC ARTS, you can compare the effects of market volatilities on North American 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 North American with a short position of ELECTRONIC ARTS. Check out your portfolio center. Please also check ongoing floating volatility patterns of North American and ELECTRONIC ARTS.
Diversification Opportunities for North American and ELECTRONIC ARTS
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between North and ELECTRONIC is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction and ELECTRONIC ARTS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ELECTRONIC ARTS and North American 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 North American Construction 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 North American i.e., North American and ELECTRONIC ARTS go up and down completely randomly.
Pair Corralation between North American and ELECTRONIC ARTS
Assuming the 90 days horizon North American is expected to generate 1.91 times less return on investment than ELECTRONIC ARTS. In addition to that, North American is 2.4 times more volatile than ELECTRONIC ARTS. It trades about 0.07 of its total potential returns per unit of risk. ELECTRONIC ARTS is currently generating about 0.34 per unit of volatility. If you would invest 12,914 in ELECTRONIC ARTS on September 3, 2024 and sell it today you would earn a total of 2,506 from holding ELECTRONIC ARTS or generate 19.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
North American Construction vs. ELECTRONIC ARTS
Performance |
| Timeline |
| North American Const |
| ELECTRONIC ARTS |
North American and ELECTRONIC ARTS Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with North American and ELECTRONIC ARTS
The main advantage of trading using opposite North American and ELECTRONIC ARTS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if North American 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's long position.| North American vs. Halliburton | North American vs. Superior Plus Corp | North American vs. NMI Holdings | North American vs. Origin Agritech |
| ELECTRONIC ARTS vs. FEMALE HEALTH | ELECTRONIC ARTS vs. DiamondRock Hospitality | ELECTRONIC ARTS vs. SHIP HEALTHCARE HLDGINC | ELECTRONIC ARTS vs. YOOMA WELLNESS 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 Stocks Directory module to find actively traded stocks across global markets.
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