Correlation Between Electronic Arts and LendingTree

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

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

Diversification Opportunities for Electronic Arts and LendingTree

-0.79

Correlation Coefficient

Electronic Arts  LendingTree

Pay attention - limited upside

The 3 months correlation between Electronic and LendingTree is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Electronic Arts and LendingTree in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LendingTree 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 LendingTree. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LendingTree has no effect on the direction of Electronic Arts i.e., Electronic Arts and LendingTree go up and down completely randomly.

Pair Corralation between Electronic Arts and LendingTree

Assuming the 90 days trading horizon Electronic Arts is expected to under-perform the LendingTree. But the stock apears to be less risky and, when comparing its historical volatility, Electronic Arts is 2.66 times less risky than LendingTree. The stock trades about -0.41 of its potential returns per unit of risk. The LendingTree is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest  4,173  in LendingTree on September 26, 2024 and sell it today you would lose (393.00) from holding LendingTree or give up 9.42% of portfolio value over 90 days.

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

Electronic Arts  vs.  LendingTree

Electronic Arts

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Electronic Arts are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Electronic Arts may actually be approaching a critical reversion point that can send shares even higher in January 2025.

LendingTree

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LendingTree has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Electronic Arts and LendingTree

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

The idea behind Electronic Arts and LendingTree 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.