Correlation Between United Insurance and ELECTRONIC ARTS

Can any of the company-specific risk be diversified away by investing in both United Insurance 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 United Insurance and ELECTRONIC ARTS into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between United Insurance Holdings and ELECTRONIC ARTS, you can compare the effects of market volatilities on United Insurance 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 United Insurance with a short position of ELECTRONIC ARTS. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Insurance and ELECTRONIC ARTS.

Diversification Opportunities for United Insurance and ELECTRONIC ARTS

0.06

Correlation Coefficient

United Insurance  ELECTRONIC ARTS

Significant diversification

The 3 months correlation between United and ELECTRONIC is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding United Insurance Holdings and ELECTRONIC ARTS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ELECTRONIC ARTS and United Insurance 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 United Insurance Holdings 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 United Insurance i.e., United Insurance and ELECTRONIC ARTS go up and down completely randomly.

Pair Corralation between United Insurance and ELECTRONIC ARTS

Assuming the 90 days horizon United Insurance Holdings is expected to under-perform the ELECTRONIC ARTS. But the stock apears to be less risky and, when comparing its historical volatility, United Insurance Holdings is 1.08 times less risky than ELECTRONIC ARTS. The stock trades about -0.08 of its potential returns per unit of risk. The ELECTRONIC ARTS is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  14,107  in ELECTRONIC ARTS on December 30, 2024 and sell it today you would lose (659.00) from holding ELECTRONIC ARTS or give up 4.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

United Insurance Holdings  vs.  ELECTRONIC ARTS

United Insurance Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days United Insurance Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

ELECTRONIC ARTS

Risk-Adjusted Performance

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 rather sound basic indicators, ELECTRONIC ARTS is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with United Insurance and ELECTRONIC ARTS

The main advantage of trading using opposite United Insurance and ELECTRONIC ARTS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Insurance 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.

The idea behind United Insurance Holdings 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.

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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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.