Correlation Between Electronic Arts and Sony

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

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

Diversification Opportunities for Electronic Arts and Sony

0.61

Correlation Coefficient

Electronic Arts  Sony

Poor diversification

The 3 months correlation between Electronic and Sony is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Electronic Arts and Sony Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sony Group 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 Sony. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sony Group has no effect on the direction of Electronic Arts i.e., Electronic Arts and Sony go up and down completely randomly.

Pair Corralation between Electronic Arts and Sony

Assuming the 90 days trading horizon Electronic Arts is expected to under-perform the Sony. But the stock apears to be less risky and, when comparing its historical volatility, Electronic Arts is 1.63 times less risky than Sony. The stock trades about -0.58 of its potential returns per unit of risk. The Sony Group is currently generating about -0.22 of returns per unit of risk over similar time horizon. If you would invest  13,117  in Sony Group on October 15, 2024 and sell it today you would lose (781.00) from holding Sony Group or give up 5.95% of portfolio value over 90 days.

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

Electronic Arts  vs.  Sony Group

Electronic Arts

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Electronic Arts are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong forward indicators, Electronic Arts is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Sony Group

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sony Group are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Sony sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Electronic Arts and Sony

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

The idea behind Electronic Arts and Sony 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.