Correlation Between Eros International and Next Mediaworks

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

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

Diversification Opportunities for Eros International and Next Mediaworks

-0.61

Correlation Coefficient

Eros International  Next Mediaworks

Excellent diversification

The 3 months correlation between Eros and Next is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Eros International Media and Next Mediaworks Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Next Mediaworks and Eros International 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 Eros International Media are associated (or correlated) with Next Mediaworks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Next Mediaworks has no effect on the direction of Eros International i.e., Eros International and Next Mediaworks go up and down completely randomly.

Pair Corralation between Eros International and Next Mediaworks

Assuming the 90 days trading horizon Eros International Media is expected to under-perform the Next Mediaworks. But the stock apears to be less risky and, when comparing its historical volatility, Eros International Media is 1.13 times less risky than Next Mediaworks. The stock trades about -0.03 of its potential returns per unit of risk. The Next Mediaworks Limited is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  695.00  in Next Mediaworks Limited on September 23, 2024 and sell it today you would earn a total of  160.00  from holding Next Mediaworks Limited or generate 23.02% return on investment over 90 days.

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

Eros International Media  vs.  Next Mediaworks Limited

Eros International Media

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eros International Media has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Next Mediaworks

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Next Mediaworks Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, Next Mediaworks exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eros International and Next Mediaworks

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

The idea behind Eros International Media and Next Mediaworks Limited 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.