Correlation Between Electronic Arts and United Utilities

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

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

Diversification Opportunities for Electronic Arts and United Utilities

0.71

Correlation Coefficient

Electronic Arts  United Utilities

Poor diversification

The 3 months correlation between Electronic and United is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Electronic Arts and United Utilities Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Utilities 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 United Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Utilities has no effect on the direction of Electronic Arts i.e., Electronic Arts and United Utilities go up and down completely randomly.

Pair Corralation between Electronic Arts and United Utilities

Assuming the 90 days trading horizon Electronic Arts is expected to generate 0.82 times more return on investment than United Utilities. However, Electronic Arts is 1.21 times less risky than United Utilities. It trades about 0.03 of its potential returns per unit of risk. United Utilities Group is currently generating about 0.01 per unit of risk. If you would invest  11,823  in Electronic Arts on October 17, 2024 and sell it today you would earn a total of  1,955  from holding Electronic Arts or generate 16.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	90.62%
Values	Daily Returns

Electronic Arts  vs.  United Utilities Group

Electronic Arts

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Electronic Arts are ranked lower than 3 (%) 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.

United Utilities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United Utilities Group 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 technical and fundamental indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Electronic Arts and United Utilities

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

The idea behind Electronic Arts and United Utilities Group 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.