Correlation Between Warner Music and Cadence Design
Can any of the company-specific risk be diversified away by investing in both Warner Music and Cadence Design 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 Cadence Design 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 Cadence Design Systems, you can compare the effects of market volatilities on Warner Music and Cadence Design 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 Cadence Design. Check out your portfolio center. Please also check ongoing floating volatility patterns of Warner Music and Cadence Design.
Diversification Opportunities for Warner Music and Cadence Design
0.45 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Warner and Cadence is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and Cadence Design Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cadence Design Systems 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 Cadence Design. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cadence Design Systems has no effect on the direction of Warner Music i.e., Warner Music and Cadence Design go up and down completely randomly.
Pair Corralation between Warner Music and Cadence Design
Assuming the 90 days horizon Warner Music Group is expected to under-perform the Cadence Design. But the stock apears to be less risky and, when comparing its historical volatility, Warner Music Group is 1.01 times less risky than Cadence Design. The stock trades about -0.11 of its potential returns per unit of risk. The Cadence Design Systems is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 29,620 in Cadence Design Systems on October 25, 2024 and sell it today you would earn a total of 1,405 from holding Cadence Design Systems or generate 4.74% 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. Cadence Design Systems
Performance |
| Timeline |
| Warner Music Group |
| Cadence Design Systems |
Warner Music and Cadence Design Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Warner Music and Cadence Design
The main advantage of trading using opposite Warner Music and Cadence Design positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Warner Music position performs unexpectedly, Cadence Design 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 Cadence Design will offset losses from the drop in Cadence Design's long position.| Warner Music vs. CDL INVESTMENT | Warner Music vs. Coeur Mining | Warner Music vs. DISTRICT METALS | Warner Music vs. ADRIATIC METALS LS 013355 |
| Cadence Design vs. GEAR4MUSIC LS 10 | Cadence Design vs. MUTUIONLINE | Cadence Design vs. Global Ship Lease | Cadence Design vs. Warner Music Group |
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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