Correlation Between Warner Music and Rio Tinto
Can any of the company-specific risk be diversified away by investing in both Warner Music and Rio Tinto 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 Rio Tinto 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 Rio Tinto Group, you can compare the effects of market volatilities on Warner Music and Rio Tinto 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 Rio Tinto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Warner Music and Rio Tinto.
Diversification Opportunities for Warner Music and Rio Tinto
0.44 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Warner and Rio is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and Rio Tinto Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto Group 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 Rio Tinto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rio Tinto Group has no effect on the direction of Warner Music i.e., Warner Music and Rio Tinto go up and down completely randomly.
Pair Corralation between Warner Music and Rio Tinto
Assuming the 90 days horizon Warner Music Group is expected to generate 1.26 times more return on investment than Rio Tinto. However, Warner Music is 1.26 times more volatile than Rio Tinto Group. It trades about 0.06 of its potential returns per unit of risk. Rio Tinto Group is currently generating about 0.0 per unit of risk. If you would invest 2,744 in Warner Music Group on September 3, 2024 and sell it today you would earn a total of 332.00 from holding Warner Music Group or generate 12.1% 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. Rio Tinto Group
Performance |
| Timeline |
| Warner Music Group |
| Rio Tinto Group |
Warner Music and Rio Tinto Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Warner Music and Rio Tinto
The main advantage of trading using opposite Warner Music and Rio Tinto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Warner Music position performs unexpectedly, Rio Tinto 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 Rio Tinto will offset losses from the drop in Rio Tinto's long position.The idea behind Warner Music Group and Rio Tinto Group 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.| Rio Tinto vs. FAST RETAIL ADR | Rio Tinto vs. Warner Music Group | Rio Tinto vs. Jacquet Metal Service | Rio Tinto vs. MARKET VECTR RETAIL |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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