Correlation Between Warner Music and American Tower
Can any of the company-specific risk be diversified away by investing in both Warner Music and American Tower 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 American Tower 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 American Tower, you can compare the effects of market volatilities on Warner Music and American Tower 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 American Tower. Check out your portfolio center. Please also check ongoing floating volatility patterns of Warner Music and American Tower.
Diversification Opportunities for Warner Music and American Tower
-0.64 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Warner and American is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and American Tower in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Tower 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 American Tower. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Tower has no effect on the direction of Warner Music i.e., Warner Music and American Tower go up and down completely randomly.
Pair Corralation between Warner Music and American Tower
Assuming the 90 days trading horizon Warner Music is expected to generate 1.29 times less return on investment than American Tower. But when comparing it to its historical volatility, Warner Music Group is 1.07 times less risky than American Tower. It trades about 0.08 of its potential returns per unit of risk. American Tower is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 4,197 in American Tower on August 30, 2024 and sell it today you would earn a total of 1,003 from holding American Tower or generate 23.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Warner Music Group vs. American Tower
Performance |
| Timeline |
| Warner Music Group |
| American Tower |
Warner Music and American Tower Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Warner Music and American Tower
The main advantage of trading using opposite Warner Music and American Tower positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Warner Music position performs unexpectedly, American Tower 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 American Tower will offset losses from the drop in American Tower's long position.The idea behind Warner Music Group and American Tower 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.| American Tower vs. Metalurgica Gerdau SA | American Tower vs. Warner Music Group | American Tower vs. MAHLE Metal Leve | American Tower vs. T Mobile |
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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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