Correlation Between Electronic Arts and Wise Plc

Can any of the company-specific risk be diversified away by investing in both Electronic Arts and Wise Plc 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 Wise Plc into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Electronic Arts and Wise plc, you can compare the effects of market volatilities on Electronic Arts and Wise Plc 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 Wise Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Electronic Arts and Wise Plc.

Diversification Opportunities for Electronic Arts and Wise Plc

-0.32

Correlation Coefficient

Electronic Arts  Wise Plc

Very good diversification

The 3 months correlation between Electronic and Wise is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Electronic Arts and Wise plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wise plc 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 Wise Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wise plc has no effect on the direction of Electronic Arts i.e., Electronic Arts and Wise Plc go up and down completely randomly.

Pair Corralation between Electronic Arts and Wise Plc

Assuming the 90 days trading horizon Electronic Arts is expected to under-perform the Wise Plc. But the stock apears to be less risky and, when comparing its historical volatility, Electronic Arts is 3.06 times less risky than Wise Plc. The stock trades about -0.36 of its potential returns per unit of risk. The Wise plc is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  106,400  in Wise plc on October 25, 2024 and sell it today you would earn a total of  0.00  from holding Wise plc or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

Electronic Arts  vs.  Wise plc

Electronic Arts

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Electronic Arts has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Electronic Arts is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Wise plc

Risk-Adjusted Performance

26 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Wise plc are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Wise Plc unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Electronic Arts and Wise Plc

The main advantage of trading using opposite Electronic Arts and Wise Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Electronic Arts position performs unexpectedly, Wise Plc 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 Wise Plc will offset losses from the drop in Wise Plc's long position.

The idea behind Electronic Arts and Wise plc 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.

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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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.