Correlation Between Fidelity National and Warner Music

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Can any of the company-specific risk be diversified away by investing in both Fidelity National 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 Fidelity National and Warner Music into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fidelity National Information and Warner Music Group, you can compare the effects of market volatilities on Fidelity National 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 Fidelity National with a short position of Warner Music. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fidelity National and Warner Music.

Diversification Opportunities for Fidelity National and Warner Music

0.83
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Fidelity and Warner is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity National Information 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 Fidelity National 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 Fidelity National Information 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 Fidelity National i.e., Fidelity National and Warner Music go up and down completely randomly.

Pair Corralation between Fidelity National and Warner Music

Assuming the 90 days trading horizon Fidelity National Information is expected to generate 0.78 times more return on investment than Warner Music. However, Fidelity National Information is 1.28 times less risky than Warner Music. It trades about 0.12 of its potential returns per unit of risk. Warner Music Group is currently generating about 0.08 per unit of risk. If you would invest  1,645  in Fidelity National Information on August 31, 2024 and sell it today you would earn a total of  1,404  from holding Fidelity National Information or generate 85.35% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy97.04%
ValuesDaily Returns

Fidelity National Information  vs.  Warner Music Group

 Performance 
       Timeline  
Fidelity National 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity National Information are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Fidelity National is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Warner Music Group 

Risk-Adjusted Performance

15 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Warner Music Group are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain primary indicators, Warner Music sustained solid returns over the last few months and may actually be approaching a breakup point.

Fidelity National and Warner Music Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Fidelity National and Warner Music

The main advantage of trading using opposite Fidelity National and Warner Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fidelity National 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.
The idea behind Fidelity National Information and Warner Music Group 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.

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