Correlation Between Tree House and Next Mediaworks

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

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

Diversification Opportunities for Tree House and Next Mediaworks

-0.13

Correlation Coefficient

Tree House  Next Mediaworks

Good diversification

The 3 months correlation between Tree and Next is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Tree House Education and Next Mediaworks Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Next Mediaworks and Tree House 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 Tree House Education 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 Tree House i.e., Tree House and Next Mediaworks go up and down completely randomly.

Pair Corralation between Tree House and Next Mediaworks

Assuming the 90 days trading horizon Tree House Education is expected to generate 0.77 times more return on investment than Next Mediaworks. However, Tree House Education is 1.3 times less risky than Next Mediaworks. It trades about 0.27 of its potential returns per unit of risk. Next Mediaworks Limited is currently generating about -0.38 per unit of risk. If you would invest  1,552  in Tree House Education on September 24, 2024 and sell it today you would earn a total of  249.00  from holding Tree House Education or generate 16.04% return on investment over 90 days.

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

Tree House Education  vs.  Next Mediaworks Limited

Tree House Education

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tree House Education has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

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 unfluctuating fundamental indicators, Next Mediaworks exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tree House and Next Mediaworks

The main advantage of trading using opposite Tree House and Next Mediaworks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tree House 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 Tree House Education 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.