Correlation Between Electronic Arts and Tyson Foods

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

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

Diversification Opportunities for Electronic Arts and Tyson Foods

0.64

Correlation Coefficient

Electronic Arts  Tyson Foods

Poor diversification

The 3 months correlation between Electronic and Tyson is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Electronic Arts and Tyson Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tyson Foods 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 Tyson Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tyson Foods has no effect on the direction of Electronic Arts i.e., Electronic Arts and Tyson Foods go up and down completely randomly.

Pair Corralation between Electronic Arts and Tyson Foods

Allowing for the 90-day total investment horizon Electronic Arts is expected to generate 0.77 times more return on investment than Tyson Foods. However, Electronic Arts is 1.3 times less risky than Tyson Foods. It trades about 0.06 of its potential returns per unit of risk. Tyson Foods is currently generating about 0.02 per unit of risk. If you would invest  12,014  in Electronic Arts on September 13, 2024 and sell it today you would earn a total of  4,245  from holding Electronic Arts or generate 35.33% return on investment over 90 days.

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

Electronic Arts  vs.  Tyson Foods

Electronic Arts

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Electronic Arts are ranked lower than 13 (%) 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.

Tyson Foods

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Tyson Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Tyson Foods is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Electronic Arts and Tyson Foods

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

The idea behind Electronic Arts and Tyson Foods 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.