Correlation Between SMA Solar and Electronic Arts

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

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

Diversification Opportunities for SMA Solar and Electronic Arts

-0.88

Correlation Coefficient

SMA Solar  Electronic Arts

Pay attention - limited upside

The 3 months correlation between SMA and Electronic is -0.88. Overlapping area represents the amount of risk that can be diversified away by holding SMA Solar Technology and Electronic Arts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electronic Arts and SMA Solar 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 SMA Solar Technology 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 SMA Solar i.e., SMA Solar and Electronic Arts go up and down completely randomly.

Pair Corralation between SMA Solar and Electronic Arts

Assuming the 90 days horizon SMA Solar Technology is expected to under-perform the Electronic Arts. In addition to that, SMA Solar is 3.48 times more volatile than Electronic Arts. It trades about -0.11 of its total potential returns per unit of risk. Electronic Arts is currently generating about 0.22 per unit of volatility. If you would invest  12,667  in Electronic Arts on September 18, 2024 and sell it today you would earn a total of  2,177  from holding Electronic Arts or generate 17.19% return on investment over 90 days.

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

SMA Solar Technology  vs.  Electronic Arts

SMA Solar Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SMA Solar Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Electronic Arts

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Electronic Arts are ranked lower than 17 (%) 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 SMA Solar and Electronic Arts

The main advantage of trading using opposite SMA Solar and Electronic Arts positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SMA Solar 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 SMA Solar Technology 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.