Correlation Between Electronic Arts and British American

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

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

Diversification Opportunities for Electronic Arts and British American

-0.64

Correlation Coefficient

Electronic Arts  British American

Excellent diversification

The 3 months correlation between Electronic and British is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Electronic Arts and British American Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on British American Tobacco 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 British American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of British American Tobacco has no effect on the direction of Electronic Arts i.e., Electronic Arts and British American go up and down completely randomly.

Pair Corralation between Electronic Arts and British American

Assuming the 90 days trading horizon Electronic Arts is expected to generate 5.52 times less return on investment than British American. In addition to that, Electronic Arts is 1.46 times more volatile than British American Tobacco. It trades about 0.01 of its total potential returns per unit of risk. British American Tobacco is currently generating about 0.1 per unit of volatility. If you would invest  2,598  in British American Tobacco on December 3, 2024 and sell it today you would earn a total of  1,174  from holding British American Tobacco or generate 45.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	79.88%
Values	Daily Returns

Electronic Arts  vs.  British American Tobacco

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 uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

British American Tobacco

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, British American may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Electronic Arts and British American

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

The idea behind Electronic Arts and British American Tobacco 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.