Correlation Between Japan Post and Electronic Arts

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Can any of the company-specific risk be diversified away by investing in both Japan Post 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 Japan Post and Electronic Arts into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Japan Post Insurance and Electronic Arts, you can compare the effects of market volatilities on Japan Post 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 Japan Post with a short position of Electronic Arts. Check out your portfolio center. Please also check ongoing floating volatility patterns of Japan Post and Electronic Arts.

Diversification Opportunities for Japan Post and Electronic Arts

0.7
  Correlation Coefficient

Poor diversification

The 3 months correlation between Japan and Electronic is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Japan Post Insurance and Electronic Arts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electronic Arts and Japan Post 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 Japan Post Insurance 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 Japan Post i.e., Japan Post and Electronic Arts go up and down completely randomly.

Pair Corralation between Japan Post and Electronic Arts

Assuming the 90 days trading horizon Japan Post is expected to generate 2.03 times less return on investment than Electronic Arts. In addition to that, Japan Post is 1.42 times more volatile than Electronic Arts. It trades about 0.02 of its total potential returns per unit of risk. Electronic Arts is currently generating about 0.05 per unit of volatility. If you would invest  10,372  in Electronic Arts on October 25, 2024 and sell it today you would earn a total of  3,382  from holding Electronic Arts or generate 32.61% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Japan Post Insurance  vs.  Electronic Arts

 Performance 
       Timeline  
Japan Post Insurance 

Risk-Adjusted Performance

11 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Japan Post Insurance are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Japan Post unveiled solid returns over the last few months and may actually be approaching a breakup point.
Electronic Arts 

Risk-Adjusted Performance

3 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Electronic Arts are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Electronic Arts is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Japan Post and Electronic Arts Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Japan Post and Electronic Arts

The main advantage of trading using opposite Japan Post and Electronic Arts positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Japan Post 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 Japan Post Insurance 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.

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