Correlation Between NetApp and Electronic Arts
Can any of the company-specific risk be diversified away by investing in both NetApp 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 NetApp and Electronic Arts into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NetApp Inc and Electronic Arts, you can compare the effects of market volatilities on NetApp 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 NetApp with a short position of Electronic Arts. Check out your portfolio center. Please also check ongoing floating volatility patterns of NetApp and Electronic Arts.
Diversification Opportunities for NetApp and Electronic Arts
-0.73 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between NetApp and Electronic is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding NetApp Inc and Electronic Arts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electronic Arts and NetApp 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 NetApp Inc 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 NetApp i.e., NetApp and Electronic Arts go up and down completely randomly.
Pair Corralation between NetApp and Electronic Arts
Given the investment horizon of 90 days NetApp Inc is expected to generate 3.65 times more return on investment than Electronic Arts. However, NetApp is 3.65 times more volatile than Electronic Arts. It trades about 0.11 of its potential returns per unit of risk. Electronic Arts is currently generating about -0.33 per unit of risk. If you would invest 8,699 in NetApp Inc on January 24, 2024 and sell it today you would earn a total of 1,092 from holding NetApp Inc or generate 12.55% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
NetApp Inc vs. Electronic Arts
Performance |
| Timeline |
| NetApp Inc |
| Electronic Arts |
NetApp and Electronic Arts Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NetApp and Electronic Arts
The main advantage of trading using opposite NetApp and Electronic Arts positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NetApp 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 NetApp Inc 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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