Correlation Between ELECTRONIC ARTS and ITV Plc

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

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

Diversification Opportunities for ELECTRONIC ARTS and ITV Plc

0.25

Correlation Coefficient

ELECTRONIC ARTS  ITV Plc

Modest diversification

The 3 months correlation between ELECTRONIC and ITV is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding ELECTRONIC ARTS and ITV plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ITV plc 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 ITV Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ITV plc has no effect on the direction of ELECTRONIC ARTS i.e., ELECTRONIC ARTS and ITV Plc go up and down completely randomly.

Pair Corralation between ELECTRONIC ARTS and ITV Plc

Assuming the 90 days trading horizon ELECTRONIC ARTS is expected to under-perform the ITV Plc. In addition to that, ELECTRONIC ARTS is 1.11 times more volatile than ITV plc. It trades about -0.05 of its total potential returns per unit of risk. ITV plc is currently generating about 0.06 per unit of volatility. If you would invest  88.00  in ITV plc on December 21, 2024 and sell it today you would earn a total of  6.00  from holding ITV plc or generate 6.82% return on investment over 90 days.

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

ELECTRONIC ARTS  vs.  ITV plc

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 latest fragile performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

ITV plc

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ITV plc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, ITV Plc may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with ELECTRONIC ARTS and ITV Plc

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

The idea behind ELECTRONIC ARTS and ITV plc 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.