Correlation Between Addus HomeCare and Electronic Arts

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

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

Diversification Opportunities for Addus HomeCare and Electronic Arts

-0.32

Correlation Coefficient

Addus HomeCare  Electronic Arts

Very good diversification

The 3 months correlation between Addus and Electronic is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Addus HomeCare and Electronic Arts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electronic Arts and Addus HomeCare 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 Addus HomeCare 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 Addus HomeCare i.e., Addus HomeCare and Electronic Arts go up and down completely randomly.

Pair Corralation between Addus HomeCare and Electronic Arts

Assuming the 90 days horizon Addus HomeCare is expected to generate 1.67 times more return on investment than Electronic Arts. However, Addus HomeCare is 1.67 times more volatile than Electronic Arts. It trades about 0.05 of its potential returns per unit of risk. Electronic Arts is currently generating about 0.07 per unit of risk. If you would invest  10,700  in Addus HomeCare on October 4, 2024 and sell it today you would earn a total of  1,300  from holding Addus HomeCare or generate 12.15% return on investment over 90 days.

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

Addus HomeCare  vs.  Electronic Arts

Addus HomeCare

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Addus HomeCare are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Addus HomeCare may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Electronic Arts

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Electronic Arts are ranked lower than 11 (%) 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 February 2025.

Pair Trading with Addus HomeCare and Electronic Arts

The main advantage of trading using opposite Addus HomeCare and Electronic Arts positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Addus HomeCare 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 Addus HomeCare 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.

Check out your portfolio center.

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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.