Correlation Between Warner Music and Shopify
Can any of the company-specific risk be diversified away by investing in both Warner Music and Shopify 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 Shopify 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 Shopify, you can compare the effects of market volatilities on Warner Music and Shopify 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 Shopify. Check out your portfolio center. Please also check ongoing floating volatility patterns of Warner Music and Shopify.
Diversification Opportunities for Warner Music and Shopify
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Warner and Shopify is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and Shopify in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shopify 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 Shopify. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shopify has no effect on the direction of Warner Music i.e., Warner Music and Shopify go up and down completely randomly.
Pair Corralation between Warner Music and Shopify
Assuming the 90 days trading horizon Warner Music is expected to generate 2.88 times less return on investment than Shopify. But when comparing it to its historical volatility, Warner Music Group is 1.81 times less risky than Shopify. It trades about 0.12 of its potential returns per unit of risk. Shopify is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 524.00 in Shopify on September 13, 2024 and sell it today you would earn a total of 60.00 from holding Shopify or generate 11.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Warner Music Group vs. Shopify
Performance |
| Timeline |
| Warner Music Group |
| Shopify |
Warner Music and Shopify Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Warner Music and Shopify
The main advantage of trading using opposite Warner Music and Shopify positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Warner Music position performs unexpectedly, Shopify 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 Shopify will offset losses from the drop in Shopify's long position.| Warner Music vs. Charter Communications | Warner Music vs. Iron Mountain Incorporated | Warner Music vs. Spotify Technology SA | Warner Music vs. Autohome |
| Shopify vs. Spotify Technology SA | Shopify vs. BIONTECH SE DRN | Shopify vs. Lupatech SA | Shopify vs. GX AI TECH |
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 Anywhere module to track or share privately all of your investments from the convenience of any device.
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