Correlation Between Electronic Arts and British American
Can any of the company-specific risk be diversified away by investing in both Electronic Arts and British American 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 British American into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Electronic Arts and British American Tobacco, you can compare the effects of market volatilities on Electronic Arts and British American 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 British American. Check out your portfolio center. Please also check ongoing floating volatility patterns of Electronic Arts and British American.
Diversification Opportunities for Electronic Arts and British American
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Electronic and British is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Electronic Arts and British American Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on British American Tobacco 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 British American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of British American Tobacco has no effect on the direction of Electronic Arts i.e., Electronic Arts and British American go up and down completely randomly.
Pair Corralation between Electronic Arts and British American
Assuming the 90 days trading horizon Electronic Arts is expected to generate 0.96 times more return on investment than British American. However, Electronic Arts is 1.04 times less risky than British American. It trades about 0.29 of its potential returns per unit of risk. British American Tobacco 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 Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Electronic Arts vs. British American Tobacco
Performance |
Timeline |
Electronic Arts |
British American Tobacco |
Electronic Arts and British American Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Electronic Arts and British American
The main advantage of trading using opposite Electronic Arts and British American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Electronic Arts position performs unexpectedly, British American 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 British American will offset losses from the drop in British American's long position.Electronic Arts vs. Take Two Interactive Software | Electronic Arts vs. Bemobi Mobile Tech | Electronic Arts vs. The Home Depot | Electronic Arts vs. Verizon Communications |
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Check out your portfolio center.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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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