Correlation Between Scholastic and Seven Arts

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

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

Diversification Opportunities for Scholastic and Seven Arts

0.41

Correlation Coefficient

Scholastic  Seven Arts

Very weak diversification

The 3 months correlation between Scholastic and Seven is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Scholastic and Seven Arts Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Seven Arts Entertainment and Scholastic 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 Scholastic are associated (or correlated) with Seven Arts. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Seven Arts Entertainment has no effect on the direction of Scholastic i.e., Scholastic and Seven Arts go up and down completely randomly.

Pair Corralation between Scholastic and Seven Arts

Given the investment horizon of 90 days Scholastic is expected to under-perform the Seven Arts. But the stock apears to be less risky and, when comparing its historical volatility, Scholastic is 5.88 times less risky than Seven Arts. The stock trades about -0.04 of its potential returns per unit of risk. The Seven Arts Entertainment is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  0.13  in Seven Arts Entertainment on October 20, 2024 and sell it today you would lose (0.11) from holding Seven Arts Entertainment or give up 84.62% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.39%
Values	Daily Returns

Scholastic  vs.  Seven Arts Entertainment

Scholastic

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Scholastic has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's technical indicators remain quite persistent which may send shares a bit higher in February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Seven Arts Entertainment

Risk-Adjusted Performance

5 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Seven Arts Entertainment are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Seven Arts showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Scholastic and Seven Arts

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

The idea behind Scholastic and Seven Arts Entertainment 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.