Correlation Between Auto Trader and Electronic Arts

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

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

Diversification Opportunities for Auto Trader and Electronic Arts

0.02

Correlation Coefficient

Auto Trader  Electronic Arts

Significant diversification

The 3 months correlation between Auto and Electronic is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Auto Trader Group and Electronic Arts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electronic Arts and Auto Trader 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 Auto Trader Group 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 Auto Trader i.e., Auto Trader and Electronic Arts go up and down completely randomly.

Pair Corralation between Auto Trader and Electronic Arts

Assuming the 90 days trading horizon Auto Trader Group is expected to under-perform the Electronic Arts. But the stock apears to be less risky and, when comparing its historical volatility, Auto Trader Group is 2.62 times less risky than Electronic Arts. The stock trades about -0.1 of its potential returns per unit of risk. The Electronic Arts is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  14,903  in Electronic Arts on December 24, 2024 and sell it today you would lose (450.00) from holding Electronic Arts or give up 3.02% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Auto Trader Group  vs.  Electronic Arts

Auto Trader Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Auto Trader Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains 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 comparatively stable basic indicators, Electronic Arts is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Auto Trader and Electronic Arts

The main advantage of trading using opposite Auto Trader and Electronic Arts positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Auto Trader 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 Auto Trader Group 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.