Correlation Between TT Electronics and ELECTRONIC ARTS

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

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

Diversification Opportunities for TT Electronics and ELECTRONIC ARTS

0.89

Correlation Coefficient

TT Electronics  ELECTRONIC ARTS

Very poor diversification

The 3 months correlation between 7TT and ELECTRONIC is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding TT Electronics PLC and ELECTRONIC ARTS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ELECTRONIC ARTS and TT Electronics 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 TT Electronics PLC 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 TT Electronics i.e., TT Electronics and ELECTRONIC ARTS go up and down completely randomly.

Pair Corralation between TT Electronics and ELECTRONIC ARTS

Assuming the 90 days trading horizon TT Electronics PLC is expected to under-perform the ELECTRONIC ARTS. But the stock apears to be less risky and, when comparing its historical volatility, TT Electronics PLC is 1.19 times less risky than ELECTRONIC ARTS. The stock trades about -0.25 of its potential returns per unit of risk. The ELECTRONIC ARTS is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  11,729  in ELECTRONIC ARTS on December 5, 2024 and sell it today you would earn a total of  583.00  from holding ELECTRONIC ARTS or generate 4.97% return on investment over 90 days.

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

TT Electronics PLC  vs.  ELECTRONIC ARTS

TT Electronics PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days TT Electronics PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

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 uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with TT Electronics and ELECTRONIC ARTS

The main advantage of trading using opposite TT Electronics and ELECTRONIC ARTS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TT Electronics 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 TT Electronics PLC 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.