Correlation Between Electronic Arts and SohuCom

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

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

Diversification Opportunities for Electronic Arts and SohuCom

-0.13

Correlation Coefficient

Electronic Arts  SohuCom

Good diversification

The 3 months correlation between Electronic and SohuCom is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Electronic Arts and SohuCom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SohuCom 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 SohuCom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SohuCom has no effect on the direction of Electronic Arts i.e., Electronic Arts and SohuCom go up and down completely randomly.

Pair Corralation between Electronic Arts and SohuCom

Allowing for the 90-day total investment horizon Electronic Arts is expected to under-perform the SohuCom. But the stock apears to be less risky and, when comparing its historical volatility, Electronic Arts is 2.88 times less risky than SohuCom. The stock trades about -0.26 of its potential returns per unit of risk. The SohuCom is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  1,320  in SohuCom on October 23, 2024 and sell it today you would lose (29.00) from holding SohuCom or give up 2.2% of portfolio value over 90 days.

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

Electronic Arts  vs.  SohuCom

Electronic Arts

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Electronic Arts has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

SohuCom

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SohuCom has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's technical indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Electronic Arts and SohuCom

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

The idea behind Electronic Arts and SohuCom 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.