Correlation Between Electronic Arts and Verizon Communications

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

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

Diversification Opportunities for Electronic Arts and Verizon Communications

0.53

Correlation Coefficient

Electronic Arts  Verizon Communications

Very weak diversification

The 3 months correlation between Electronic and Verizon is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Electronic Arts and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications 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 Verizon Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verizon Communications has no effect on the direction of Electronic Arts i.e., Electronic Arts and Verizon Communications go up and down completely randomly.

Pair Corralation between Electronic Arts and Verizon Communications

Assuming the 90 days trading horizon Electronic Arts is expected to generate 0.77 times more return on investment than Verizon Communications. However, Electronic Arts is 1.3 times less risky than Verizon Communications. It trades about 0.32 of its potential returns per unit of risk. Verizon Communications is currently generating about 0.12 per unit of risk. If you would invest  40,147  in Electronic Arts on September 6, 2024 and sell it today you would earn a total of  10,445  from holding Electronic Arts or generate 26.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Electronic Arts  vs.  Verizon Communications

Electronic Arts

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Electronic Arts are ranked lower than 24 (%) 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.

Verizon Communications

Risk-Adjusted Performance

9 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Verizon Communications are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Verizon Communications may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Electronic Arts and Verizon Communications

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

The idea behind Electronic Arts and Verizon Communications 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.