Correlation Between Warner Music and Australian Agricultural
Can any of the company-specific risk be diversified away by investing in both Warner Music and Australian Agricultural 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 Australian Agricultural 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 Australian Agricultural, you can compare the effects of market volatilities on Warner Music and Australian Agricultural 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 Australian Agricultural. Check out your portfolio center. Please also check ongoing floating volatility patterns of Warner Music and Australian Agricultural.
Diversification Opportunities for Warner Music and Australian Agricultural
-0.55 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Warner and Australian is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and Australian Agricultural in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Australian Agricultural 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 Australian Agricultural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Australian Agricultural has no effect on the direction of Warner Music i.e., Warner Music and Australian Agricultural go up and down completely randomly.
Pair Corralation between Warner Music and Australian Agricultural
Assuming the 90 days horizon Warner Music is expected to generate 1.26 times less return on investment than Australian Agricultural. In addition to that, Warner Music is 1.12 times more volatile than Australian Agricultural. It trades about 0.01 of its total potential returns per unit of risk. Australian Agricultural is currently generating about 0.01 per unit of volatility. If you would invest 82.00 in Australian Agricultural on September 24, 2024 and sell it today you would earn a total of 1.00 from holding Australian Agricultural or generate 1.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Warner Music Group vs. Australian Agricultural
Performance |
| Timeline |
| Warner Music Group |
| Australian Agricultural |
Warner Music and Australian Agricultural Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Warner Music and Australian Agricultural
The main advantage of trading using opposite Warner Music and Australian Agricultural positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Warner Music position performs unexpectedly, Australian Agricultural 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 Australian Agricultural will offset losses from the drop in Australian Agricultural's long position.| Warner Music vs. The Walt Disney | Warner Music vs. The Walt Disney | Warner Music vs. Charter Communications | Warner Music vs. ViacomCBS |
| Australian Agricultural vs. Archer Daniels Midland | Australian Agricultural vs. Tyson Foods | Australian Agricultural vs. Wilmar International Limited | Australian Agricultural vs. MOWI ASA SPADR |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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