Correlation Between NetEase and Electronic Arts
Can any of the company-specific risk be diversified away by investing in both NetEase 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 NetEase and Electronic Arts into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NetEase and Electronic Arts, you can compare the effects of market volatilities on NetEase 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 NetEase with a short position of Electronic Arts. Check out your portfolio center. Please also check ongoing floating volatility patterns of NetEase and Electronic Arts.
Diversification Opportunities for NetEase and Electronic Arts
-0.62 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between NetEase and Electronic is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding NetEase and Electronic Arts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electronic Arts and NetEase 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 NetEase 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 NetEase i.e., NetEase and Electronic Arts go up and down completely randomly.
Pair Corralation between NetEase and Electronic Arts
Assuming the 90 days trading horizon NetEase is expected to under-perform the Electronic Arts. But the stock apears to be less risky and, when comparing its historical volatility, NetEase is 1.18 times less risky than Electronic Arts. The stock trades about -0.06 of its potential returns per unit of risk. The Electronic Arts is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 34,714 in Electronic Arts on November 28, 2024 and sell it today you would earn a total of 1,786 from holding Electronic Arts or generate 5.14% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
NetEase vs. Electronic Arts
Performance |
| Timeline |
| NetEase |
| Electronic Arts |
NetEase and Electronic Arts Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NetEase and Electronic Arts
The main advantage of trading using opposite NetEase and Electronic Arts positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NetEase 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' long position.The idea behind NetEase and Electronic Arts pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Electronic Arts vs. Autohome | Electronic Arts vs. Align Technology | Electronic Arts vs. Brpr Corporate Offices | Electronic Arts vs. UnitedHealth Group Incorporated |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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