Correlation Between Warner Music and CVS Health
Can any of the company-specific risk be diversified away by investing in both Warner Music and CVS Health 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 CVS Health 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 CVS Health, you can compare the effects of market volatilities on Warner Music and CVS Health 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 CVS Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Warner Music and CVS Health.
Diversification Opportunities for Warner Music and CVS Health
0.23 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Warner and CVS is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and CVS Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS Health 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 CVS Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVS Health has no effect on the direction of Warner Music i.e., Warner Music and CVS Health go up and down completely randomly.
Pair Corralation between Warner Music and CVS Health
Assuming the 90 days horizon Warner Music Group is expected to generate 1.0 times more return on investment than CVS Health. However, Warner Music is 1.0 times more volatile than CVS Health. It trades about 0.01 of its potential returns per unit of risk. CVS Health is currently generating about -0.03 per unit of risk. If you would invest 3,058 in Warner Music Group on September 4, 2024 and sell it today you would earn a total of 18.00 from holding Warner Music Group or generate 0.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Warner Music Group vs. CVS Health
Performance |
| Timeline |
| Warner Music Group |
| CVS Health |
Warner Music and CVS Health Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Warner Music and CVS Health
The main advantage of trading using opposite Warner Music and CVS Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Warner Music position performs unexpectedly, CVS Health 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 CVS Health will offset losses from the drop in CVS Health's long position.The idea behind Warner Music Group and CVS Health 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.| CVS Health vs. TOTAL GABON | CVS Health vs. Walgreens Boots Alliance | CVS Health vs. Peak Resources Limited |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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