Correlation Between Credit Acceptance and Warner Music
Can any of the company-specific risk be diversified away by investing in both Credit Acceptance 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 Credit Acceptance and Warner Music into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Credit Acceptance and Warner Music Group, you can compare the effects of market volatilities on Credit Acceptance 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 Credit Acceptance with a short position of Warner Music. Check out your portfolio center. Please also check ongoing floating volatility patterns of Credit Acceptance and Warner Music.
Diversification Opportunities for Credit Acceptance and Warner Music
0.0 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Credit and Warner is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Credit Acceptance 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 Credit Acceptance 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 Credit Acceptance 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 Credit Acceptance i.e., Credit Acceptance and Warner Music go up and down completely randomly.
Pair Corralation between Credit Acceptance and Warner Music
Assuming the 90 days trading horizon Credit Acceptance is expected to generate 0.92 times more return on investment than Warner Music. However, Credit Acceptance is 1.08 times less risky than Warner Music. It trades about 0.03 of its potential returns per unit of risk. Warner Music Group is currently generating about 0.02 per unit of risk. If you would invest 25,800 in Credit Acceptance on September 5, 2024 and sell it today you would earn a total of 6,700 from holding Credit Acceptance or generate 25.97% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Flat |
| Strength | Insignificant |
| Accuracy | 98.17% |
| Values | Daily Returns |
Credit Acceptance vs. Warner Music Group
Performance |
| Timeline |
| Credit Acceptance |
| Warner Music Group |
Credit Acceptance and Warner Music Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Credit Acceptance and Warner Music
The main advantage of trading using opposite Credit Acceptance and Warner Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Credit Acceptance 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.| Credit Acceptance vs. Tyson Foods | Credit Acceptance vs. Verizon Communications | Credit Acceptance vs. Unity Software | Credit Acceptance vs. Metalurgica Gerdau SA |
| Warner Music vs. Deutsche Bank Aktiengesellschaft | Warner Music vs. Verizon Communications | Warner Music vs. Southwest Airlines Co | Warner Music vs. HDFC Bank Limited |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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