Correlation Between Nufarm and ELECTRONIC ARTS

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

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

Diversification Opportunities for Nufarm and ELECTRONIC ARTS

0.12

Correlation Coefficient

Nufarm  ELECTRONIC ARTS

Average diversification

The 3 months correlation between Nufarm and ELECTRONIC is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Nufarm Limited and ELECTRONIC ARTS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ELECTRONIC ARTS and Nufarm 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 Nufarm Limited 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 Nufarm i.e., Nufarm and ELECTRONIC ARTS go up and down completely randomly.

Pair Corralation between Nufarm and ELECTRONIC ARTS

Assuming the 90 days horizon Nufarm Limited is expected to under-perform the ELECTRONIC ARTS. In addition to that, Nufarm is 1.4 times more volatile than ELECTRONIC ARTS. It trades about -0.1 of its total potential returns per unit of risk. ELECTRONIC ARTS is currently generating about 0.14 per unit of volatility. If you would invest  12,707  in ELECTRONIC ARTS on September 26, 2024 and sell it today you would earn a total of  1,491  from holding ELECTRONIC ARTS or generate 11.73% return on investment over 90 days.

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

Nufarm Limited  vs.  ELECTRONIC ARTS

Nufarm Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nufarm Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

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.

Pair Trading with Nufarm and ELECTRONIC ARTS

The main advantage of trading using opposite Nufarm and ELECTRONIC ARTS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nufarm 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's long position.

The idea behind Nufarm Limited 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.