Correlation Between Best Buy and Warner Music
Can any of the company-specific risk be diversified away by investing in both Best Buy and Warner Music 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 Best Buy and Warner Music into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Best Buy Co and Warner Music Group, you can compare the effects of market volatilities on Best Buy and Warner Music 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 Best Buy with a short position of Warner Music. Check out your portfolio center. Please also check ongoing floating volatility patterns of Best Buy and Warner Music.
Diversification Opportunities for Best Buy and Warner Music
-0.25 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Best and Warner is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Best Buy Co and Warner Music Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Warner Music Group and Best Buy 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 Best Buy Co are associated (or correlated) with Warner Music. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Warner Music Group has no effect on the direction of Best Buy i.e., Best Buy and Warner Music go up and down completely randomly.
Pair Corralation between Best Buy and Warner Music
Assuming the 90 days trading horizon Best Buy Co is expected to under-perform the Warner Music. But the stock apears to be less risky and, when comparing its historical volatility, Best Buy Co is 1.1 times less risky than Warner Music. The stock trades about -0.02 of its potential returns per unit of risk. The Warner Music Group is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest 3,994 in Warner Music Group on September 2, 2024 and sell it today you would earn a total of 844.00 from holding Warner Music Group or generate 21.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 96.88% |
| Values | Daily Returns |
Best Buy Co vs. Warner Music Group
Performance |
| Timeline |
| Best Buy |
| Warner Music Group |
Best Buy and Warner Music Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Best Buy and Warner Music
The main advantage of trading using opposite Best Buy and Warner Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Best Buy position performs unexpectedly, Warner Music 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 Warner Music will offset losses from the drop in Warner Music's long position.| Best Buy vs. Take Two Interactive Software | Best Buy vs. Cognizant Technology Solutions | Best Buy vs. Livetech da Bahia | Best Buy vs. Brpr Corporate Offices |
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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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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