Correlation Between Electronic Arts and Autohome

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

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

Diversification Opportunities for Electronic Arts and Autohome

-0.18

Correlation Coefficient

Electronic Arts  Autohome

Good diversification

The 3 months correlation between Electronic and Autohome is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Electronic Arts and Autohome in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Autohome 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 Autohome. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Autohome has no effect on the direction of Electronic Arts i.e., Electronic Arts and Autohome go up and down completely randomly.

Pair Corralation between Electronic Arts and Autohome

Assuming the 90 days trading horizon Electronic Arts is expected to generate 0.57 times more return on investment than Autohome. However, Electronic Arts is 1.76 times less risky than Autohome. It trades about 0.29 of its potential returns per unit of risk. Autohome is currently generating about 0.08 per unit of risk. If you would invest  40,242  in Electronic Arts on September 7, 2024 and sell it today you would earn a total of  9,738  from holding Electronic Arts or generate 24.2% return on investment over 90 days.

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

Electronic Arts  vs.  Autohome

Electronic Arts

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Electronic Arts are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak forward indicators, Electronic Arts sustained solid returns over the last few months and may actually be approaching a breakup point.

Autohome

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Autohome are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Autohome may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Electronic Arts and Autohome

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

The idea behind Electronic Arts and Autohome 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.