Correlation Between Lindsell Train and Electronic Arts

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

By analyzing existing cross correlation between Lindsell Train Investment and Electronic Arts, you can compare the effects of market volatilities on Lindsell Train and Electronic Arts 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 Lindsell Train with a short position of Electronic Arts. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lindsell Train and Electronic Arts.

Diversification Opportunities for Lindsell Train and Electronic Arts

-0.65

Correlation Coefficient

Lindsell Train  Electronic Arts

Excellent diversification

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

Pair Corralation between Lindsell Train and Electronic Arts

Assuming the 90 days trading horizon Lindsell Train Investment is expected to under-perform the Electronic Arts. In addition to that, Lindsell Train is 1.59 times more volatile than Electronic Arts. It trades about -0.03 of its total potential returns per unit of risk. Electronic Arts is currently generating about 0.23 per unit of volatility. If you would invest  14,458  in Electronic Arts on September 12, 2024 and sell it today you would earn a total of  2,165  from holding Electronic Arts or generate 14.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Lindsell Train Investment  vs.  Electronic Arts

Lindsell Train Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lindsell Train Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Lindsell Train is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

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 comparatively uncertain basic indicators, Electronic Arts unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lindsell Train and Electronic Arts

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

The idea behind Lindsell Train Investment and Electronic Arts 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.