Correlation Between Warner Music and Sumitomo Mitsui
Can any of the company-specific risk be diversified away by investing in both Warner Music and Sumitomo Mitsui 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 Sumitomo Mitsui 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 Sumitomo Mitsui Financial, you can compare the effects of market volatilities on Warner Music and Sumitomo Mitsui 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 Sumitomo Mitsui. Check out your portfolio center. Please also check ongoing floating volatility patterns of Warner Music and Sumitomo Mitsui.
Diversification Opportunities for Warner Music and Sumitomo Mitsui
0.55 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Warner and Sumitomo is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and Sumitomo Mitsui Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Mitsui Financial 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 Sumitomo Mitsui. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumitomo Mitsui Financial has no effect on the direction of Warner Music i.e., Warner Music and Sumitomo Mitsui go up and down completely randomly.
Pair Corralation between Warner Music and Sumitomo Mitsui
Assuming the 90 days trading horizon Warner Music is expected to generate 8.04 times less return on investment than Sumitomo Mitsui. But when comparing it to its historical volatility, Warner Music Group is 1.12 times less risky than Sumitomo Mitsui. It trades about 0.07 of its potential returns per unit of risk. Sumitomo Mitsui Financial is currently generating about 0.53 of returns per unit of risk over similar time horizon. If you would invest 7,065 in Sumitomo Mitsui Financial on August 28, 2024 and sell it today you would earn a total of 1,363 from holding Sumitomo Mitsui Financial or generate 19.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Warner Music Group vs. Sumitomo Mitsui Financial
Performance |
| Timeline |
| Warner Music Group |
| Sumitomo Mitsui Financial |
Warner Music and Sumitomo Mitsui Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Warner Music and Sumitomo Mitsui
The main advantage of trading using opposite Warner Music and Sumitomo Mitsui positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Warner Music position performs unexpectedly, Sumitomo Mitsui 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 Sumitomo Mitsui will offset losses from the drop in Sumitomo Mitsui's long position.| Warner Music vs. Charter Communications | Warner Music vs. Fras le SA | Warner Music vs. Clave Indices De | Warner Music vs. BTG Pactual Logstica |
| Sumitomo Mitsui vs. Fras le SA | Sumitomo Mitsui vs. Clave Indices De | Sumitomo Mitsui vs. BTG Pactual Logstica | Sumitomo Mitsui vs. Telefonaktiebolaget LM Ericsson |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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