Correlation Between North American and Warner Music
Can any of the company-specific risk be diversified away by investing in both North American 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 North American and Warner Music into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between North American Construction and Warner Music Group, you can compare the effects of market volatilities on North American 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 North American with a short position of Warner Music. Check out your portfolio center. Please also check ongoing floating volatility patterns of North American and Warner Music.
Diversification Opportunities for North American and Warner Music
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between North and Warner is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction 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 North American 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 North American Construction 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 North American i.e., North American and Warner Music go up and down completely randomly.
Pair Corralation between North American and Warner Music
Assuming the 90 days horizon North American Construction is expected to generate 1.01 times more return on investment than Warner Music. However, North American is 1.01 times more volatile than Warner Music Group. It trades about 0.08 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 1,868 in North American Construction on September 13, 2024 and sell it today you would earn a total of 62.00 from holding North American Construction or generate 3.32% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
North American Construction vs. Warner Music Group
Performance |
| Timeline |
| North American Const |
| Warner Music Group |
North American and Warner Music Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with North American and Warner Music
The main advantage of trading using opposite North American and Warner Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if North American 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.| North American vs. Tenaris SA | North American vs. NOV Inc | North American vs. Superior Plus Corp | North American vs. SIVERS SEMICONDUCTORS AB |
| Warner Music vs. The Walt Disney | Warner Music vs. Charter Communications | Warner Music vs. Superior Plus Corp | Warner Music vs. SIVERS SEMICONDUCTORS AB |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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