Correlation Between ELECTRONIC ARTS and Benchmark Electronics

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

By analyzing existing cross correlation between ELECTRONIC ARTS and Benchmark Electronics, you can compare the effects of market volatilities on ELECTRONIC ARTS and Benchmark Electronics 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 Benchmark Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of ELECTRONIC ARTS and Benchmark Electronics.

Diversification Opportunities for ELECTRONIC ARTS and Benchmark Electronics

0.88

Correlation Coefficient

ELECTRONIC ARTS  Benchmark Electronics

Very poor diversification

The 3 months correlation between ELECTRONIC and Benchmark is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding ELECTRONIC ARTS and Benchmark Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Benchmark Electronics 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 Benchmark Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Benchmark Electronics has no effect on the direction of ELECTRONIC ARTS i.e., ELECTRONIC ARTS and Benchmark Electronics go up and down completely randomly.

Pair Corralation between ELECTRONIC ARTS and Benchmark Electronics

Assuming the 90 days trading horizon ELECTRONIC ARTS is expected to generate 2.63 times less return on investment than Benchmark Electronics. But when comparing it to its historical volatility, ELECTRONIC ARTS is 1.92 times less risky than Benchmark Electronics. It trades about 0.06 of its potential returns per unit of risk. Benchmark Electronics is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,332  in Benchmark Electronics on September 12, 2024 and sell it today you would earn a total of  2,148  from holding Benchmark Electronics or generate 92.11% return on investment over 90 days.

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

ELECTRONIC ARTS  vs.  Benchmark Electronics

ELECTRONIC ARTS

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ELECTRONIC ARTS are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, ELECTRONIC ARTS exhibited solid returns over the last few months and may actually be approaching a breakup point.

Benchmark Electronics

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Benchmark Electronics are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Benchmark Electronics reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ELECTRONIC ARTS and Benchmark Electronics

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

The idea behind ELECTRONIC ARTS and Benchmark Electronics 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.