Correlation Between Electronic Arts and Kenvue

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

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

Diversification Opportunities for Electronic Arts and Kenvue

0.77

Correlation Coefficient

Electronic Arts  Kenvue

Poor diversification

The 3 months correlation between Electronic and Kenvue is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Electronic Arts and Kenvue Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kenvue Inc and Electronic Arts 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 Electronic Arts are associated (or correlated) with Kenvue. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kenvue Inc has no effect on the direction of Electronic Arts i.e., Electronic Arts and Kenvue go up and down completely randomly.

Pair Corralation between Electronic Arts and Kenvue

Allowing for the 90-day total investment horizon Electronic Arts is expected to generate 0.73 times more return on investment than Kenvue. However, Electronic Arts is 1.36 times less risky than Kenvue. It trades about 0.04 of its potential returns per unit of risk. Kenvue Inc is currently generating about -0.02 per unit of risk. If you would invest  12,230  in Electronic Arts on October 6, 2024 and sell it today you would earn a total of  2,399  from holding Electronic Arts or generate 19.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	84.85%
Values	Daily Returns

Electronic Arts  vs.  Kenvue Inc

Electronic Arts

Risk-Adjusted Performance

3 of 100

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 somewhat strong basic indicators, Electronic Arts is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Kenvue Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kenvue Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Kenvue is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Electronic Arts and Kenvue

The main advantage of trading using opposite Electronic Arts and Kenvue positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Electronic Arts position performs unexpectedly, Kenvue 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 Kenvue will offset losses from the drop in Kenvue's long position.

The idea behind Electronic Arts and Kenvue Inc 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.