Correlation Between Electronic Arts and Renesas Electronics

Can any of the company-specific risk be diversified away by investing in both Electronic Arts and Renesas 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 Renesas 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 Renesas Electronics, you can compare the effects of market volatilities on Electronic Arts and Renesas 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 Renesas Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Electronic Arts and Renesas Electronics.

Diversification Opportunities for Electronic Arts and Renesas Electronics

-0.52

Correlation Coefficient

Electronic Arts  Renesas Electronics

Excellent diversification

The 3 months correlation between Electronic and Renesas is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Electronic Arts and Renesas Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Renesas 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 Renesas Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Renesas Electronics has no effect on the direction of Electronic Arts i.e., Electronic Arts and Renesas Electronics go up and down completely randomly.

Pair Corralation between Electronic Arts and Renesas Electronics

Assuming the 90 days trading horizon Electronic Arts is expected to generate 0.38 times more return on investment than Renesas Electronics. However, Electronic Arts is 2.62 times less risky than Renesas Electronics. It trades about 0.26 of its potential returns per unit of risk. Renesas Electronics is currently generating about -0.01 per unit of risk. If you would invest  13,062  in Electronic Arts on September 17, 2024 and sell it today you would earn a total of  2,516  from holding Electronic Arts or generate 19.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Electronic Arts  vs.  Renesas Electronics

Electronic Arts

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Electronic Arts are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Electronic Arts unveiled solid returns over the last few months and may actually be approaching a breakup point.

Renesas Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Renesas Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Renesas Electronics is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Electronic Arts and Renesas Electronics

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

The idea behind Electronic Arts and Renesas 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.