Correlation Between Nasdaq and Warner Music
Can any of the company-specific risk be diversified away by investing in both Nasdaq 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 Nasdaq and Warner Music into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nasdaq Inc and Warner Music Group, you can compare the effects of market volatilities on Nasdaq 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 Nasdaq with a short position of Warner Music. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq and Warner Music.
Diversification Opportunities for Nasdaq and Warner Music
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Nasdaq and Warner is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc 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 Nasdaq 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 Nasdaq Inc 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 Nasdaq i.e., Nasdaq and Warner Music go up and down completely randomly.
Pair Corralation between Nasdaq and Warner Music
Assuming the 90 days trading horizon Nasdaq Inc is expected to generate 1.15 times more return on investment than Warner Music. However, Nasdaq is 1.15 times more volatile than Warner Music Group. It trades about 0.04 of its potential returns per unit of risk. Warner Music Group is currently generating about -0.06 per unit of risk. If you would invest 23,840 in Nasdaq Inc on October 20, 2024 and sell it today you would earn a total of 220.00 from holding Nasdaq Inc or generate 0.92% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 94.74% |
| Values | Daily Returns |
Nasdaq Inc vs. Warner Music Group
Performance |
| Timeline |
| Nasdaq Inc |
| Warner Music Group |
Nasdaq and Warner Music Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nasdaq and Warner Music
The main advantage of trading using opposite Nasdaq and Warner Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq 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.| Nasdaq vs. The Trade Desk | Nasdaq vs. GX AI TECH | Nasdaq vs. Check Point Software | Nasdaq vs. Paycom Software |
| Warner Music vs. Comcast | Warner Music vs. Charter Communications | Warner Music vs. Live Nation Entertainment, | Warner Music vs. Paramount Global |
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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