Correlation Between Woolworths and Seven West
Can any of the company-specific risk be diversified away by investing in both Woolworths 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 Woolworths and Seven West into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Woolworths and Seven West Media, you can compare the effects of market volatilities on Woolworths 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 Woolworths with a short position of Seven West. Check out your portfolio center. Please also check ongoing floating volatility patterns of Woolworths and Seven West.
Diversification Opportunities for Woolworths and Seven West
0.17 | Correlation Coefficient |
Average diversification
The 3 months correlation between Woolworths and Seven is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Woolworths 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 Woolworths 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 Woolworths 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 Woolworths i.e., Woolworths and Seven West go up and down completely randomly.
Pair Corralation between Woolworths and Seven West
Assuming the 90 days trading horizon Woolworths is expected to generate 3.77 times less return on investment than Seven West. But when comparing it to its historical volatility, Woolworths is 5.65 times less risky than Seven West. It trades about 0.22 of its potential returns per unit of risk. Seven West Media is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 16.00 in Seven West Media on November 27, 2024 and sell it today you would earn a total of 2.00 from holding Seven West Media or generate 12.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Woolworths vs. Seven West Media
Performance |
| Timeline |
| Woolworths |
| Seven West Media |
Woolworths and Seven West Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Woolworths and Seven West
The main advantage of trading using opposite Woolworths and Seven West positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Woolworths 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.| Woolworths vs. Tambourah Metals | Woolworths vs. Nufarm Finance NZ | Woolworths vs. Catalyst Metals | Woolworths vs. Australian Agricultural |
| Seven West vs. Australian Agricultural | Seven West vs. Super Retail Group | Seven West vs. BKI Investment | Seven West vs. Auctus Alternative Investments |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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