Correlation Between Aristocrat Leisure and Seven West

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

By analyzing existing cross correlation between Aristocrat Leisure Limited and Seven West Media, you can compare the effects of market volatilities on Aristocrat Leisure and Seven West 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 Aristocrat Leisure with a short position of Seven West. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aristocrat Leisure and Seven West.

Diversification Opportunities for Aristocrat Leisure and Seven West

0.78

Correlation Coefficient

Aristocrat Leisure  Seven West

Poor diversification

The 3 months correlation between Aristocrat and Seven is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Aristocrat Leisure Limited and Seven West Media in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Seven West Media and Aristocrat Leisure 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 Aristocrat Leisure Limited are associated (or correlated) with Seven West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Seven West Media has no effect on the direction of Aristocrat Leisure i.e., Aristocrat Leisure and Seven West go up and down completely randomly.

Pair Corralation between Aristocrat Leisure and Seven West

Assuming the 90 days horizon Aristocrat Leisure Limited is expected to under-perform the Seven West. But the stock apears to be less risky and, when comparing its historical volatility, Aristocrat Leisure Limited is 2.23 times less risky than Seven West. The stock trades about -0.06 of its potential returns per unit of risk. The Seven West Media is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  8.05  in Seven West Media on December 23, 2024 and sell it today you would earn a total of  0.55  from holding Seven West Media or generate 6.83% return on investment over 90 days.

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

Aristocrat Leisure Limited  vs.  Seven West Media

Aristocrat Leisure

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aristocrat Leisure Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Seven West Media

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Seven West Media are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Seven West may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Aristocrat Leisure and Seven West

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

The idea behind Aristocrat Leisure Limited and Seven West Media 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.