Correlation Between ELECTRONIC ARTS and Global Payments

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

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

Diversification Opportunities for ELECTRONIC ARTS and Global Payments

0.93

Correlation Coefficient

ELECTRONIC ARTS  Global Payments

Almost no diversification

The 3 months correlation between ELECTRONIC and Global is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding ELECTRONIC ARTS and Global Payments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Payments 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 Global Payments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Payments has no effect on the direction of ELECTRONIC ARTS i.e., ELECTRONIC ARTS and Global Payments go up and down completely randomly.

Pair Corralation between ELECTRONIC ARTS and Global Payments

Assuming the 90 days trading horizon ELECTRONIC ARTS is expected to generate 1.95 times less return on investment than Global Payments. But when comparing it to its historical volatility, ELECTRONIC ARTS is 1.62 times less risky than Global Payments. It trades about 0.14 of its potential returns per unit of risk. Global Payments is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  8,704  in Global Payments on September 26, 2024 and sell it today you would earn a total of  2,071  from holding Global Payments or generate 23.79% return on investment over 90 days.

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

ELECTRONIC ARTS  vs.  Global Payments

ELECTRONIC ARTS

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ELECTRONIC ARTS are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, ELECTRONIC ARTS may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Global Payments

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Global Payments are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Global Payments reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ELECTRONIC ARTS and Global Payments

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

The idea behind ELECTRONIC ARTS and Global Payments 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 CEOs Directory module to screen CEOs from public companies around the world.