Correlation Between Warner Music and RWE AG
Can any of the company-specific risk be diversified away by investing in both Warner Music and RWE AG 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 RWE AG 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 RWE AG, you can compare the effects of market volatilities on Warner Music and RWE AG 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 RWE AG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Warner Music and RWE AG.
Diversification Opportunities for Warner Music and RWE AG
-0.66 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Warner and RWE is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and RWE AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RWE AG 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 RWE AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RWE AG has no effect on the direction of Warner Music i.e., Warner Music and RWE AG go up and down completely randomly.
Pair Corralation between Warner Music and RWE AG
Assuming the 90 days horizon Warner Music Group is expected to generate 1.23 times more return on investment than RWE AG. However, Warner Music is 1.23 times more volatile than RWE AG. It trades about 0.01 of its potential returns per unit of risk. RWE AG is currently generating about 0.0 per unit of risk. If you would invest 2,990 in Warner Music Group on September 4, 2024 and sell it today you would earn a total of 86.00 from holding Warner Music Group or generate 2.88% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Warner Music Group vs. RWE AG
Performance |
| Timeline |
| Warner Music Group |
| RWE AG |
Warner Music and RWE AG Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Warner Music and RWE AG
The main advantage of trading using opposite Warner Music and RWE AG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Warner Music position performs unexpectedly, RWE AG 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 RWE AG will offset losses from the drop in RWE AG's long position.The idea behind Warner Music Group and RWE AG 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.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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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