Correlation Between Electronic Arts and Square Enix

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

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

Diversification Opportunities for Electronic Arts and Square Enix

-0.48

Correlation Coefficient

Electronic Arts  Square Enix

Very good diversification

The 3 months correlation between Electronic and Square is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Electronic Arts and Square Enix Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Square Enix Holdings 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 Square Enix. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Square Enix Holdings has no effect on the direction of Electronic Arts i.e., Electronic Arts and Square Enix go up and down completely randomly.

Pair Corralation between Electronic Arts and Square Enix

Allowing for the 90-day total investment horizon Electronic Arts is expected to under-perform the Square Enix. But the stock apears to be less risky and, when comparing its historical volatility, Electronic Arts is 1.2 times less risky than Square Enix. The stock trades about -0.14 of its potential returns per unit of risk. The Square Enix Holdings is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,000  in Square Enix Holdings on December 2, 2024 and sell it today you would earn a total of  280.00  from holding Square Enix Holdings or generate 14.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	93.85%
Values	Daily Returns

Electronic Arts  vs.  Square Enix Holdings

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. Despite inconsistent performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Square Enix Holdings

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Square Enix Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Square Enix showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Electronic Arts and Square Enix

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

The idea behind Electronic Arts and Square Enix Holdings 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.