Correlation Between Electronic Arts and Software Acquisition

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

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

Diversification Opportunities for Electronic Arts and Software Acquisition

-0.47

Correlation Coefficient

Electronic Arts  Software Acquisition

Very good diversification

The 3 months correlation between Electronic and Software is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Electronic Arts and Software Acquisition Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Software Acquisition 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 Software Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Software Acquisition has no effect on the direction of Electronic Arts i.e., Electronic Arts and Software Acquisition go up and down completely randomly.

Pair Corralation between Electronic Arts and Software Acquisition

Allowing for the 90-day total investment horizon Electronic Arts is expected to generate 0.38 times more return on investment than Software Acquisition. However, Electronic Arts is 2.65 times less risky than Software Acquisition. It trades about 0.18 of its potential returns per unit of risk. Software Acquisition Group is currently generating about -0.08 per unit of risk. If you would invest  14,566  in Electronic Arts on September 13, 2024 and sell it today you would earn a total of  1,826  from holding Electronic Arts or generate 12.54% return on investment over 90 days.

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

Electronic Arts  vs.  Software Acquisition Group

Electronic Arts

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Electronic Arts are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent basic indicators, Electronic Arts may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Software Acquisition

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Software Acquisition Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating 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 Software Acquisition

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

The idea behind Electronic Arts and Software Acquisition 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.