Correlation Between Electronic Arts and Hua Hong

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

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

Diversification Opportunities for Electronic Arts and Hua Hong

-0.45

Correlation Coefficient

Electronic Arts  Hua Hong

Very good diversification

The 3 months correlation between Electronic and Hua is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Electronic Arts and Hua Hong Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hua Hong Semiconductor 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 Hua Hong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hua Hong Semiconductor has no effect on the direction of Electronic Arts i.e., Electronic Arts and Hua Hong go up and down completely randomly.

Pair Corralation between Electronic Arts and Hua Hong

Assuming the 90 days trading horizon Electronic Arts is expected to generate 4.91 times less return on investment than Hua Hong. But when comparing it to its historical volatility, Electronic Arts is 2.8 times less risky than Hua Hong. It trades about 0.03 of its potential returns per unit of risk. Hua Hong Semiconductor is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  272.00  in Hua Hong Semiconductor on October 25, 2024 and sell it today you would earn a total of  24.00  from holding Hua Hong Semiconductor or generate 8.82% return on investment over 90 days.

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

Electronic Arts  vs.  Hua Hong Semiconductor

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 comparatively stable basic indicators, Electronic Arts is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Hua Hong Semiconductor

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hua Hong Semiconductor are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Hua Hong reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Electronic Arts and Hua Hong

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

The idea behind Electronic Arts and Hua Hong Semiconductor 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.