Correlation Between Tesco PLC and Seven I

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

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

Diversification Opportunities for Tesco PLC and Seven I

-0.38

Correlation Coefficient

Tesco PLC  Seven I

Very good diversification

The 3 months correlation between Tesco and Seven is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Tesco PLC and Seven i Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Seven i Holdings and Tesco PLC 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 Tesco PLC are associated (or correlated) with Seven I. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Seven i Holdings has no effect on the direction of Tesco PLC i.e., Tesco PLC and Seven I go up and down completely randomly.

Pair Corralation between Tesco PLC and Seven I

Assuming the 90 days horizon Tesco PLC is expected to under-perform the Seven I. But the pink sheet apears to be less risky and, when comparing its historical volatility, Tesco PLC is 2.43 times less risky than Seven I. The pink sheet trades about -0.02 of its potential returns per unit of risk. The Seven i Holdings is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,512  in Seven i Holdings on September 4, 2024 and sell it today you would earn a total of  220.00  from holding Seven i Holdings or generate 14.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Tesco PLC  vs.  Seven i Holdings

Tesco PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tesco PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, Tesco PLC is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Seven i Holdings

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Seven i Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, Seven I showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tesco PLC and Seven I

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

The idea behind Tesco PLC and Seven i Holdings 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.