Correlation Between Stepan and Electronic Arts

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

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

Diversification Opportunities for Stepan and Electronic Arts

0.27

Correlation Coefficient

Stepan  Electronic Arts

Modest diversification

The 3 months correlation between Stepan and Electronic is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Electronic Arts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electronic Arts and Stepan 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 Stepan Company 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 Stepan i.e., Stepan and Electronic Arts go up and down completely randomly.

Pair Corralation between Stepan and Electronic Arts

Considering the 90-day investment horizon Stepan is expected to generate 5.99 times less return on investment than Electronic Arts. In addition to that, Stepan is 1.9 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 0.29 per unit of volatility. If you would invest  14,400  in Electronic Arts on September 13, 2024 and sell it today you would earn a total of  1,950  from holding Electronic Arts or generate 13.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	97.67%
Values	Daily Returns

Stepan Company  vs.  Electronic Arts

Stepan Company

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Stepan Company are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental indicators, Stepan is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Electronic Arts

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Electronic Arts are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent basic indicators, Electronic Arts may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Stepan and Electronic Arts

The main advantage of trading using opposite Stepan and Electronic Arts positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stepan 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 Stepan Company 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.