Correlation Between Take Two and Electronic Arts

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

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

Diversification Opportunities for Take Two and Electronic Arts

0.98

Correlation Coefficient

Take Two  Electronic Arts

Almost no diversification

The 3 months correlation between Take and Electronic is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Take Two Interactive Software and Electronic Arts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electronic Arts and Take Two 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 Take Two Interactive Software 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 Take Two i.e., Take Two and Electronic Arts go up and down completely randomly.

Pair Corralation between Take Two and Electronic Arts

Assuming the 90 days trading horizon Take Two Interactive Software is expected to generate 1.28 times more return on investment than Electronic Arts. However, Take Two is 1.28 times more volatile than Electronic Arts. It trades about 0.27 of its potential returns per unit of risk. Electronic Arts is currently generating about 0.22 per unit of risk. If you would invest  21,812  in Take Two Interactive Software on September 3, 2024 and sell it today you would earn a total of  6,530  from holding Take Two Interactive Software or generate 29.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.41%
Values	Daily Returns

Take Two Interactive Software  vs.  Electronic Arts

Take Two Interactive

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Take Two Interactive Software are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Take Two sustained solid returns over the last few months and may actually be approaching a breakup point.

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. Despite somewhat weak forward indicators, Electronic Arts sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Take Two and Electronic Arts

The main advantage of trading using opposite Take Two and Electronic Arts positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Take Two 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 Take Two Interactive Software 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.