Correlation Between Seven Arts and ESE Entertainment

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

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

Diversification Opportunities for Seven Arts and ESE Entertainment

0.44

Correlation Coefficient

Seven Arts  ESE Entertainment

Very weak diversification

The 3 months correlation between Seven and ESE is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Seven Arts Entertainment and ESE Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ESE Entertainment and Seven Arts 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 Arts Entertainment are associated (or correlated) with ESE Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ESE Entertainment has no effect on the direction of Seven Arts i.e., Seven Arts and ESE Entertainment go up and down completely randomly.

Pair Corralation between Seven Arts and ESE Entertainment

Given the investment horizon of 90 days Seven Arts Entertainment is expected to generate 2.73 times more return on investment than ESE Entertainment. However, Seven Arts is 2.73 times more volatile than ESE Entertainment. It trades about 0.05 of its potential returns per unit of risk. ESE Entertainment is currently generating about -0.12 per unit of risk. If you would invest  0.05  in Seven Arts Entertainment on September 21, 2024 and sell it today you would lose (0.02) from holding Seven Arts Entertainment or give up 40.0% of portfolio value over 90 days.

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

Seven Arts Entertainment  vs.  ESE Entertainment

Seven Arts Entertainment

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Seven Arts Entertainment are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Seven Arts showed solid returns over the last few months and may actually be approaching a breakup point.

ESE Entertainment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ESE Entertainment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Seven Arts and ESE Entertainment

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

The idea behind Seven Arts Entertainment and ESE Entertainment 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.