Correlation Between Electronic Arts and GameStop Corp

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

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

Diversification Opportunities for Electronic Arts and GameStop Corp

0.76

Correlation Coefficient

Electronic Arts  GameStop Corp

Poor diversification

The 3 months correlation between Electronic and GameStop is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Electronic Arts and GameStop Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GameStop Corp and Electronic Arts 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 Electronic Arts are associated (or correlated) with GameStop Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GameStop Corp has no effect on the direction of Electronic Arts i.e., Electronic Arts and GameStop Corp go up and down completely randomly.

Pair Corralation between Electronic Arts and GameStop Corp

Allowing for the 90-day total investment horizon Electronic Arts is expected to under-perform the GameStop Corp. But the stock apears to be less risky and, when comparing its historical volatility, Electronic Arts is 13.81 times less risky than GameStop Corp. The stock trades about -0.05 of its potential returns per unit of risk. The GameStop Corp is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,153  in GameStop Corp on February 4, 2024 and sell it today you would earn a total of  123.00  from holding GameStop Corp or generate 10.67% return on investment over 90 days.

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

Electronic Arts  vs.  GameStop Corp

Electronic Arts

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Electronic Arts has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Electronic Arts is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

GameStop Corp

Risk-Adjusted Performance

1 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in GameStop Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent primary indicators, GameStop Corp may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Electronic Arts and GameStop Corp

The main advantage of trading using opposite Electronic Arts and GameStop Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Electronic Arts position performs unexpectedly, GameStop Corp 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 GameStop Corp will offset losses from the drop in GameStop Corp's long position.

The idea behind Electronic Arts and GameStop Corp 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.