Correlation Between Electronic Arts and Software Acquisition

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

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

Diversification Opportunities for Electronic Arts and Software Acquisition

-0.37

Correlation Coefficient

Electronic Arts  Software Acquisition

Very good diversification

The 3 months correlation between Electronic and Software is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Electronic Arts and Software Acquisition Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Software Acquisition 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 Software Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Software Acquisition has no effect on the direction of Electronic Arts i.e., Electronic Arts and Software Acquisition go up and down completely randomly.

Pair Corralation between Electronic Arts and Software Acquisition

Allowing for the 90-day total investment horizon Electronic Arts is expected to generate 35.65 times less return on investment than Software Acquisition. But when comparing it to its historical volatility, Electronic Arts is 22.46 times less risky than Software Acquisition. It trades about 0.18 of its potential returns per unit of risk. Software Acquisition Group is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  1.20  in Software Acquisition Group on December 4, 2024 and sell it today you would earn a total of  0.79  from holding Software Acquisition Group or generate 65.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	47.62%
Values	Daily Returns

Electronic Arts  vs.  Software Acquisition Group

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.

Software Acquisition

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Software Acquisition Group are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal technical and fundamental indicators, Software Acquisition showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Electronic Arts and Software Acquisition

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

The idea behind Electronic Arts and Software Acquisition Group 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.