Correlation Between Indigo Books and Scholastic

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

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

Diversification Opportunities for Indigo Books and Scholastic

-0.75

Correlation Coefficient

Indigo Books  Scholastic

Pay attention - limited upside

The 3 months correlation between Indigo and Scholastic is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Indigo Books Music and Scholastic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scholastic and Indigo Books 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 Indigo Books Music are associated (or correlated) with Scholastic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Scholastic has no effect on the direction of Indigo Books i.e., Indigo Books and Scholastic go up and down completely randomly.

Pair Corralation between Indigo Books and Scholastic

Assuming the 90 days horizon Indigo Books Music is expected to generate 1.58 times more return on investment than Scholastic. However, Indigo Books is 1.58 times more volatile than Scholastic. It trades about 0.13 of its potential returns per unit of risk. Scholastic is currently generating about -0.04 per unit of risk. If you would invest  150.00  in Indigo Books Music on February 18, 2024 and sell it today you would earn a total of  30.00  from holding Indigo Books Music or generate 20.0% return on investment over 90 days.

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

Indigo Books Music  vs.  Scholastic

Indigo Books Music

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Indigo Books Music are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent fundamental drivers, Indigo Books reported solid returns over the last few months and may actually be approaching a breakup point.

Scholastic

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Scholastic has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical indicators, Scholastic is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Indigo Books and Scholastic

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

The idea behind Indigo Books Music and Scholastic 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 CEOs Directory module to screen CEOs from public companies around the world.