Correlation Between Warner Music and Iron Mountain
Can any of the company-specific risk be diversified away by investing in both Warner Music and Iron Mountain 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 Iron Mountain 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 Iron Mountain Incorporated, you can compare the effects of market volatilities on Warner Music and Iron Mountain 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 Iron Mountain. Check out your portfolio center. Please also check ongoing floating volatility patterns of Warner Music and Iron Mountain.
Diversification Opportunities for Warner Music and Iron Mountain
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Warner and Iron is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and Iron Mountain Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iron Mountain 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 Iron Mountain. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Iron Mountain has no effect on the direction of Warner Music i.e., Warner Music and Iron Mountain go up and down completely randomly.
Pair Corralation between Warner Music and Iron Mountain
Assuming the 90 days trading horizon Warner Music is expected to generate 6.61 times less return on investment than Iron Mountain. But when comparing it to its historical volatility, Warner Music Group is 1.22 times less risky than Iron Mountain. It trades about 0.02 of its potential returns per unit of risk. Iron Mountain Incorporated is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 28,379 in Iron Mountain Incorporated on August 29, 2024 and sell it today you would earn a total of 40,627 from holding Iron Mountain Incorporated or generate 143.16% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 68.6% |
| Values | Daily Returns |
Warner Music Group vs. Iron Mountain Incorporated
Performance |
| Timeline |
| Warner Music Group |
| Iron Mountain |
Warner Music and Iron Mountain Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Warner Music and Iron Mountain
The main advantage of trading using opposite Warner Music and Iron Mountain positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Warner Music position performs unexpectedly, Iron Mountain 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 Iron Mountain will offset losses from the drop in Iron Mountain's long position.The idea behind Warner Music Group and Iron Mountain Incorporated 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.| Iron Mountain vs. Global X Funds | Iron Mountain vs. Costco Wholesale | Iron Mountain vs. Warner Music Group | Iron Mountain vs. UnitedHealth Group Incorporated |
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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.
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