Correlation Between Electronic Arts and Disney

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

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

Diversification Opportunities for Electronic Arts and Disney

-0.47

Correlation Coefficient

Electronic Arts  Disney

Very good diversification

The 3 months correlation between Electronic and Disney is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Electronic Arts and Walt Disney in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walt Disney 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 Disney. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Walt Disney has no effect on the direction of Electronic Arts i.e., Electronic Arts and Disney go up and down completely randomly.

Pair Corralation between Electronic Arts and Disney

Allowing for the 90-day total investment horizon Electronic Arts is expected to generate 0.66 times more return on investment than Disney. However, Electronic Arts is 1.51 times less risky than Disney. It trades about -0.26 of its potential returns per unit of risk. Walt Disney is currently generating about -0.3 per unit of risk. If you would invest  13,334  in Electronic Arts on January 29, 2024 and sell it today you would lose (544.00) from holding Electronic Arts or give up 4.08% of portfolio value over 90 days.

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

Electronic Arts  vs.  Walt Disney

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Walt Disney

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Walt Disney are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent forward indicators, Disney unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Electronic Arts and Disney

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

The idea behind Electronic Arts and Walt Disney 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.