Correlation Between Warner Music and American Eagle
Can any of the company-specific risk be diversified away by investing in both Warner Music and American Eagle 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 Eagle 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 Eagle Outfitters, you can compare the effects of market volatilities on Warner Music and American Eagle 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 Eagle. Check out your portfolio center. Please also check ongoing floating volatility patterns of Warner Music and American Eagle.
Diversification Opportunities for Warner Music and American Eagle
0.04 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Warner and American is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and American Eagle Outfitters in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Eagle Outfitters 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 Eagle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Eagle Outfitters has no effect on the direction of Warner Music i.e., Warner Music and American Eagle go up and down completely randomly.
Pair Corralation between Warner Music and American Eagle
Assuming the 90 days horizon Warner Music Group is expected to under-perform the American Eagle. But the stock apears to be less risky and, when comparing its historical volatility, Warner Music Group is 1.46 times less risky than American Eagle. The stock trades about 0.0 of its potential returns per unit of risk. The American Eagle Outfitters is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 1,460 in American Eagle Outfitters on October 25, 2024 and sell it today you would earn a total of 190.00 from holding American Eagle Outfitters or generate 13.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Warner Music Group vs. American Eagle Outfitters
Performance |
| Timeline |
| Warner Music Group |
| American Eagle Outfitters |
Warner Music and American Eagle Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Warner Music and American Eagle
The main advantage of trading using opposite Warner Music and American Eagle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Warner Music position performs unexpectedly, American Eagle 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 Eagle will offset losses from the drop in American Eagle's long position.| Warner Music vs. Charter Communications | Warner Music vs. Superior Plus Corp | Warner Music vs. Origin Agritech | Warner Music vs. Identiv |
| American Eagle vs. FAST RETAIL ADR | American Eagle vs. TRADEDOUBLER AB SK | American Eagle vs. SALESFORCE INC CDR | American Eagle vs. TRADEGATE |
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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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