Correlation Between FSA and Seven West
Can any of the company-specific risk be diversified away by investing in both FSA and Seven West 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 FSA and Seven West into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between FSA Group and Seven West Media, you can compare the effects of market volatilities on FSA and Seven West 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 FSA with a short position of Seven West. Check out your portfolio center. Please also check ongoing floating volatility patterns of FSA and Seven West.
Diversification Opportunities for FSA and Seven West
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between FSA and Seven is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding FSA Group and Seven West Media in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Seven West Media and FSA 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 FSA Group are associated (or correlated) with Seven West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Seven West Media has no effect on the direction of FSA i.e., FSA and Seven West go up and down completely randomly.
Pair Corralation between FSA and Seven West
Assuming the 90 days trading horizon FSA Group is expected to generate 0.3 times more return on investment than Seven West. However, FSA Group is 3.33 times less risky than Seven West. It trades about -0.03 of its potential returns per unit of risk. Seven West Media is currently generating about -0.06 per unit of risk. If you would invest 84.00 in FSA Group on September 26, 2024 and sell it today you would lose (2.00) from holding FSA Group or give up 2.38% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
FSA Group vs. Seven West Media
Performance |
Timeline |
FSA Group |
Seven West Media |
FSA and Seven West Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with FSA and Seven West
The main advantage of trading using opposite FSA and Seven West positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FSA position performs unexpectedly, Seven West 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 West will offset losses from the drop in Seven West's long position.The idea behind FSA Group and Seven West Media 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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