Correlation Between Seven West and Waste Management

Can any of the company-specific risk be diversified away by investing in both Seven West and Waste Management 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 Waste Management 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 Waste Management, you can compare the effects of market volatilities on Seven West and Waste Management 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 Waste Management. Check out your portfolio center. Please also check ongoing floating volatility patterns of Seven West and Waste Management.

Diversification Opportunities for Seven West and Waste Management

-0.39

Correlation Coefficient

Seven West  Waste Management

Very good diversification

The 3 months correlation between Seven and Waste is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Seven West Media and Waste Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Waste Management 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 Waste Management. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Waste Management has no effect on the direction of Seven West i.e., Seven West and Waste Management go up and down completely randomly.

Pair Corralation between Seven West and Waste Management

Assuming the 90 days horizon Seven West Media is expected to under-perform the Waste Management. In addition to that, Seven West is 3.8 times more volatile than Waste Management. It trades about -0.03 of its total potential returns per unit of risk. Waste Management is currently generating about 0.07 per unit of volatility. If you would invest  13,444  in Waste Management on October 11, 2024 and sell it today you would earn a total of  6,450  from holding Waste Management or generate 47.98% return on investment over 90 days.

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

Seven West Media  vs.  Waste Management

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 nearly stable basic indicators, Seven West is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Waste Management

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Waste Management are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Waste Management is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Seven West and Waste Management

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

The idea behind Seven West Media and Waste Management 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.