Correlation Between Sea and Electronic Arts

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

By analyzing existing cross correlation between Sea Limited and Electronic Arts, you can compare the effects of market volatilities on Sea 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 Sea with a short position of Electronic Arts. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sea and Electronic Arts.

Diversification Opportunities for Sea and Electronic Arts

0.78

Correlation Coefficient

Sea  Electronic Arts

Poor diversification

The 3 months correlation between Sea and Electronic is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Sea Limited and Electronic Arts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electronic Arts and Sea 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 Sea Limited 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 Sea i.e., Sea and Electronic Arts go up and down completely randomly.

Pair Corralation between Sea and Electronic Arts

Assuming the 90 days horizon Sea Limited is expected to generate 1.87 times more return on investment than Electronic Arts. However, Sea is 1.87 times more volatile than Electronic Arts. It trades about 0.27 of its potential returns per unit of risk. Electronic Arts is currently generating about 0.16 per unit of risk. If you would invest  7,160  in Sea Limited on September 2, 2024 and sell it today you would earn a total of  3,540  from holding Sea Limited or generate 49.44% return on investment over 90 days.

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

Sea Limited  vs.  Electronic Arts

Sea Limited

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sea Limited are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sea reported solid returns over the last few months and may actually be approaching a breakup point.

Electronic Arts

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Electronic Arts are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Electronic Arts may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Sea and Electronic Arts

The main advantage of trading using opposite Sea and Electronic Arts positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sea 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 Sea Limited 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.