Correlation Between Australia and Seven West

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

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

Diversification Opportunities for Australia and Seven West

0.31

Correlation Coefficient

Australia  Seven West

Weak diversification

The 3 months correlation between Australia and Seven is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Australia and New 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 Australia 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 Australia and New 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 Australia i.e., Australia and Seven West go up and down completely randomly.

Pair Corralation between Australia and Seven West

Assuming the 90 days trading horizon Australia and New is expected to under-perform the Seven West. But the stock apears to be less risky and, when comparing its historical volatility, Australia and New is 3.93 times less risky than Seven West. The stock trades about -0.1 of its potential returns per unit of risk. The Seven West Media is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  17.00  in Seven West Media on October 7, 2024 and sell it today you would lose (1.00) from holding Seven West Media or give up 5.88% of portfolio value over 90 days.

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

Australia and New  vs.  Seven West Media

Australia and New

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Australia and New has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Australia is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Seven West Media

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Seven West Media has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable primary indicators, Seven West is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Australia and Seven West

The main advantage of trading using opposite Australia and Seven West positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Australia 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 Australia and New 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.