Correlation Between Warner Music and Silicon Motion
Can any of the company-specific risk be diversified away by investing in both Warner Music and Silicon Motion 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 Silicon Motion 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 Silicon Motion Technology, you can compare the effects of market volatilities on Warner Music and Silicon Motion 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 Silicon Motion. Check out your portfolio center. Please also check ongoing floating volatility patterns of Warner Music and Silicon Motion.
Diversification Opportunities for Warner Music and Silicon Motion
0.38 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Warner and Silicon is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and Silicon Motion Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Silicon Motion Technology 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 Silicon Motion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Silicon Motion Technology has no effect on the direction of Warner Music i.e., Warner Music and Silicon Motion go up and down completely randomly.
Pair Corralation between Warner Music and Silicon Motion
Assuming the 90 days horizon Warner Music Group is expected to generate 1.04 times more return on investment than Silicon Motion. However, Warner Music is 1.04 times more volatile than Silicon Motion Technology. It trades about 0.07 of its potential returns per unit of risk. Silicon Motion Technology is currently generating about -0.01 per unit of risk. If you would invest 2,991 in Warner Music Group on November 9, 2024 and sell it today you would earn a total of 102.00 from holding Warner Music Group or generate 3.41% 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. Silicon Motion Technology
Performance |
| Timeline |
| Warner Music Group |
| Silicon Motion Technology |
Warner Music and Silicon Motion Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Warner Music and Silicon Motion
The main advantage of trading using opposite Warner Music and Silicon Motion positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Warner Music position performs unexpectedly, Silicon Motion 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 Silicon Motion will offset losses from the drop in Silicon Motion's long position.| Warner Music vs. United Insurance Holdings | Warner Music vs. Sumitomo Rubber Industries | Warner Music vs. The Hanover Insurance | Warner Music vs. Insurance Australia Group |
| Silicon Motion vs. Hanison Construction Holdings | Silicon Motion vs. FARM 51 GROUP | Silicon Motion vs. Verizon Communications | Silicon Motion vs. ALEFARM BREWING DK 05 |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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