Correlation Between ELECTRONIC ARTS and PROSUS NV

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

By analyzing existing cross correlation between ELECTRONIC ARTS and PROSUS NV ADR, you can compare the effects of market volatilities on ELECTRONIC ARTS and PROSUS NV 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 PROSUS NV. Check out your portfolio center. Please also check ongoing floating volatility patterns of ELECTRONIC ARTS and PROSUS NV.

Diversification Opportunities for ELECTRONIC ARTS and PROSUS NV

-0.09

Correlation Coefficient

ELECTRONIC ARTS  PROSUS NV

Good diversification

The 3 months correlation between ELECTRONIC and PROSUS is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding ELECTRONIC ARTS and PROSUS NV ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PROSUS NV ADR 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 PROSUS NV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PROSUS NV ADR has no effect on the direction of ELECTRONIC ARTS i.e., ELECTRONIC ARTS and PROSUS NV go up and down completely randomly.

Pair Corralation between ELECTRONIC ARTS and PROSUS NV

Assuming the 90 days trading horizon ELECTRONIC ARTS is expected to under-perform the PROSUS NV. But the stock apears to be less risky and, when comparing its historical volatility, ELECTRONIC ARTS is 1.06 times less risky than PROSUS NV. The stock trades about -0.02 of its potential returns per unit of risk. The PROSUS NV ADR is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  755.00  in PROSUS NV ADR on December 30, 2024 and sell it today you would earn a total of  90.00  from holding PROSUS NV ADR or generate 11.92% 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.  PROSUS NV ADR

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. In spite of rather sound basic indicators, ELECTRONIC ARTS is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

PROSUS NV ADR

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PROSUS NV ADR are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, PROSUS NV reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ELECTRONIC ARTS and PROSUS NV

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

The idea behind ELECTRONIC ARTS and PROSUS NV ADR 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.