Correlation Between Warner Music and Microsoft
Can any of the company-specific risk be diversified away by investing in both Warner Music and Microsoft 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 Microsoft 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 Microsoft, you can compare the effects of market volatilities on Warner Music and Microsoft 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 Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of Warner Music and Microsoft.
Diversification Opportunities for Warner Music and Microsoft
-0.39 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Warner and Microsoft is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft 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 Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of Warner Music i.e., Warner Music and Microsoft go up and down completely randomly.
Pair Corralation between Warner Music and Microsoft
Assuming the 90 days trading horizon Warner Music is expected to generate 1.44 times less return on investment than Microsoft. In addition to that, Warner Music is 1.36 times more volatile than Microsoft. It trades about 0.04 of its total potential returns per unit of risk. Microsoft is currently generating about 0.07 per unit of volatility. If you would invest 5,898 in Microsoft on December 10, 2024 and sell it today you would earn a total of 3,532 from holding Microsoft or generate 59.88% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 92.86% |
| Values | Daily Returns |
Warner Music Group vs. Microsoft
Performance |
| Timeline |
| Warner Music Group |
| Microsoft |
Warner Music and Microsoft Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Warner Music and Microsoft
The main advantage of trading using opposite Warner Music and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Warner Music position performs unexpectedly, Microsoft 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 Microsoft will offset losses from the drop in Microsoft's long position.| Warner Music vs. Zoom Video Communications | ||
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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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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