Correlation Between NL Industries and Electronic Arts

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

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

Diversification Opportunities for NL Industries and Electronic Arts

0.59

Correlation Coefficient

NL Industries  Electronic Arts

Very weak diversification

The 3 months correlation between NL Industries and Electronic is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding NL Industries and Electronic Arts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electronic Arts and NL Industries 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 NL Industries are associated (or correlated) with Electronic Arts. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electronic Arts has no effect on the direction of NL Industries i.e., NL Industries and Electronic Arts go up and down completely randomly.

Pair Corralation between NL Industries and Electronic Arts

Allowing for the 90-day total investment horizon NL Industries is expected to generate 2.65 times more return on investment than Electronic Arts. However, NL Industries is 2.65 times more volatile than Electronic Arts. It trades about 0.01 of its potential returns per unit of risk. Electronic Arts is currently generating about -0.42 per unit of risk. If you would invest  800.00  in NL Industries on September 24, 2024 and sell it today you would lose (4.00) from holding NL Industries or give up 0.5% of portfolio value over 90 days.

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

NL Industries  vs.  Electronic Arts

NL Industries

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NL Industries are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady essential indicators, NL Industries disclosed solid returns over the last few months and may actually be approaching a breakup point.

Electronic Arts

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Electronic Arts are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Electronic Arts is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with NL Industries and Electronic Arts

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

The idea behind NL Industries and Electronic Arts 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.