Correlation Between A1LN34 and Electronic Arts

Can any of the company-specific risk be diversified away by investing in both A1LN34 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 A1LN34 and Electronic Arts into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between A1LN34 and Electronic Arts, you can compare the effects of market volatilities on A1LN34 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 A1LN34 with a short position of Electronic Arts. Check out your portfolio center. Please also check ongoing floating volatility patterns of A1LN34 and Electronic Arts.

Diversification Opportunities for A1LN34 and Electronic Arts

-0.27

Correlation Coefficient

A1LN34  Electronic Arts

Very good diversification

The 3 months correlation between A1LN34 and Electronic is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding A1LN34 and Electronic Arts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electronic Arts and A1LN34 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 A1LN34 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 A1LN34 i.e., A1LN34 and Electronic Arts go up and down completely randomly.

Pair Corralation between A1LN34 and Electronic Arts

Assuming the 90 days trading horizon A1LN34 is expected to generate 1.23 times more return on investment than Electronic Arts. However, A1LN34 is 1.23 times more volatile than Electronic Arts. It trades about 0.04 of its potential returns per unit of risk. Electronic Arts is currently generating about -0.16 per unit of risk. If you would invest  7,300  in A1LN34 on September 25, 2024 and sell it today you would earn a total of  85.00  from holding A1LN34 or generate 1.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

A1LN34  vs.  Electronic Arts

A1LN34

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days A1LN34 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong essential indicators, A1LN34 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Electronic Arts

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Electronic Arts are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak forward indicators, Electronic Arts sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with A1LN34 and Electronic Arts

The main advantage of trading using opposite A1LN34 and Electronic Arts positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if A1LN34 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 A1LN34 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.