Correlation Between Warner Music and Adobe
Can any of the company-specific risk be diversified away by investing in both Warner Music and Adobe 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 Adobe 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 Adobe Inc, you can compare the effects of market volatilities on Warner Music and Adobe 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 Adobe. Check out your portfolio center. Please also check ongoing floating volatility patterns of Warner Music and Adobe.
Diversification Opportunities for Warner Music and Adobe
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Warner and Adobe is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and Adobe Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adobe Inc 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 Adobe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adobe Inc has no effect on the direction of Warner Music i.e., Warner Music and Adobe go up and down completely randomly.
Pair Corralation between Warner Music and Adobe
Assuming the 90 days trading horizon Warner Music Group is expected to generate 0.75 times more return on investment than Adobe. However, Warner Music Group is 1.33 times less risky than Adobe. It trades about -0.25 of its potential returns per unit of risk. Adobe Inc is currently generating about -0.22 per unit of risk. If you would invest 4,835 in Warner Music Group on October 25, 2024 and sell it today you would lose (335.00) from holding Warner Music Group or give up 6.93% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Warner Music Group vs. Adobe Inc
Performance |
| Timeline |
| Warner Music Group |
| Adobe Inc |
Warner Music and Adobe Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Warner Music and Adobe
The main advantage of trading using opposite Warner Music and Adobe positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Warner Music position performs unexpectedly, Adobe 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 Adobe will offset losses from the drop in Adobe's long position.| Warner Music vs. Trane Technologies plc | Warner Music vs. The Trade Desk | Warner Music vs. L3Harris Technologies, | Warner Music vs. Cognizant Technology Solutions |
| Adobe vs. Seagate Technology Holdings | Adobe vs. Liberty Broadband | Adobe vs. Metalrgica Riosulense SA | Adobe vs. Cognizant Technology Solutions |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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