Correlation Between ELECTRONIC ARTS and URBAN OUTFITTERS

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

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

Diversification Opportunities for ELECTRONIC ARTS and URBAN OUTFITTERS

0.65

Correlation Coefficient

ELECTRONIC ARTS  URBAN OUTFITTERS

Poor diversification

The 3 months correlation between ELECTRONIC and URBAN is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding ELECTRONIC ARTS and URBAN OUTFITTERS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on URBAN OUTFITTERS 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 URBAN OUTFITTERS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of URBAN OUTFITTERS has no effect on the direction of ELECTRONIC ARTS i.e., ELECTRONIC ARTS and URBAN OUTFITTERS go up and down completely randomly.

Pair Corralation between ELECTRONIC ARTS and URBAN OUTFITTERS

Assuming the 90 days trading horizon ELECTRONIC ARTS is expected to generate 3.76 times less return on investment than URBAN OUTFITTERS. But when comparing it to its historical volatility, ELECTRONIC ARTS is 1.95 times less risky than URBAN OUTFITTERS. It trades about 0.04 of its potential returns per unit of risk. URBAN OUTFITTERS is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,231  in URBAN OUTFITTERS on September 24, 2024 and sell it today you would earn a total of  2,919  from holding URBAN OUTFITTERS or generate 130.84% 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.  URBAN OUTFITTERS

ELECTRONIC ARTS

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ELECTRONIC ARTS are ranked lower than 11 (%) 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.

URBAN OUTFITTERS

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in URBAN OUTFITTERS are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, URBAN OUTFITTERS unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ELECTRONIC ARTS and URBAN OUTFITTERS

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

The idea behind ELECTRONIC ARTS and URBAN OUTFITTERS 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..