Correlation Between Warner Music and Advance Auto
Can any of the company-specific risk be diversified away by investing in both Warner Music and Advance Auto 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 Warner Music and Advance Auto into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Warner Music Group and Advance Auto Parts, you can compare the effects of market volatilities on Warner Music and Advance Auto 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 Warner Music with a short position of Advance Auto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Warner Music and Advance Auto.
Diversification Opportunities for Warner Music and Advance Auto
-0.27 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Warner and Advance is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and Advance Auto Parts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advance Auto Parts and Warner Music 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 Warner Music Group are associated (or correlated) with Advance Auto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advance Auto Parts has no effect on the direction of Warner Music i.e., Warner Music and Advance Auto go up and down completely randomly.
Pair Corralation between Warner Music and Advance Auto
Assuming the 90 days trading horizon Warner Music Group is expected to generate 0.62 times more return on investment than Advance Auto. However, Warner Music Group is 1.62 times less risky than Advance Auto. It trades about 0.02 of its potential returns per unit of risk. Advance Auto Parts is currently generating about -0.04 per unit of risk. If you would invest 4,336 in Warner Music Group on August 30, 2024 and sell it today you would earn a total of 404.00 from holding Warner Music Group or generate 9.32% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 97.58% |
| Values | Daily Returns |
Warner Music Group vs. Advance Auto Parts
Performance |
| Timeline |
| Warner Music Group |
| Advance Auto Parts |
Warner Music and Advance Auto Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Warner Music and Advance Auto
The main advantage of trading using opposite Warner Music and Advance Auto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Warner Music position performs unexpectedly, Advance Auto 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 Advance Auto will offset losses from the drop in Advance Auto's long position.The idea behind Warner Music Group and Advance Auto Parts 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.| Advance Auto vs. MAHLE Metal Leve | Advance Auto vs. Charter Communications | Advance Auto vs. Southwest Airlines Co | Advance Auto vs. G2D Investments |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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