Correlation Between Seven West and American States

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

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

Diversification Opportunities for Seven West and American States

-0.16

Correlation Coefficient

Seven West  American States

Good diversification

The 3 months correlation between Seven and American is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Seven West Media and American States Water in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American States Water and Seven West 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 Seven West Media are associated (or correlated) with American States. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American States Water has no effect on the direction of Seven West i.e., Seven West and American States go up and down completely randomly.

Pair Corralation between Seven West and American States

Assuming the 90 days horizon Seven West Media is expected to generate 4.71 times more return on investment than American States. However, Seven West is 4.71 times more volatile than American States Water. It trades about 0.06 of its potential returns per unit of risk. American States Water is currently generating about -0.33 per unit of risk. If you would invest  8.15  in Seven West Media on October 9, 2024 and sell it today you would earn a total of  0.25  from holding Seven West Media or generate 3.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	94.12%
Values	Daily Returns

Seven West Media  vs.  American States Water

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. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

American States Water

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American States Water has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, American States is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Seven West and American States

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

The idea behind Seven West Media and American States Water 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.