Correlation Between ELECTRONIC ARTS and Yum Brands

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

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

Diversification Opportunities for ELECTRONIC ARTS and Yum Brands

0.76

Correlation Coefficient

ELECTRONIC ARTS  Yum Brands

Poor diversification

The 3 months correlation between ELECTRONIC and Yum is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding ELECTRONIC ARTS and Yum Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yum Brands 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 Yum Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yum Brands has no effect on the direction of ELECTRONIC ARTS i.e., ELECTRONIC ARTS and Yum Brands go up and down completely randomly.

Pair Corralation between ELECTRONIC ARTS and Yum Brands

Assuming the 90 days trading horizon ELECTRONIC ARTS is expected to generate 1.09 times more return on investment than Yum Brands. However, ELECTRONIC ARTS is 1.09 times more volatile than Yum Brands. It trades about 0.05 of its potential returns per unit of risk. Yum Brands is currently generating about 0.02 per unit of risk. If you would invest  10,470  in ELECTRONIC ARTS on October 24, 2024 and sell it today you would earn a total of  3,242  from holding ELECTRONIC ARTS or generate 30.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

ELECTRONIC ARTS  vs.  Yum Brands

ELECTRONIC ARTS

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ELECTRONIC ARTS are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, ELECTRONIC ARTS is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Yum Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Yum Brands has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Yum Brands is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with ELECTRONIC ARTS and Yum Brands

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

The idea behind ELECTRONIC ARTS and Yum Brands 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.