Correlation Between Warner Music and Fox Corp
Can any of the company-specific risk be diversified away by investing in both Warner Music and Fox Corp 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 Fox Corp 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 Fox Corp Class, you can compare the effects of market volatilities on Warner Music and Fox Corp 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 Fox Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Warner Music and Fox Corp.
Diversification Opportunities for Warner Music and Fox Corp
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Warner and Fox is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and Fox Corp Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fox Corp Class 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 Fox Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fox Corp Class has no effect on the direction of Warner Music i.e., Warner Music and Fox Corp go up and down completely randomly.
Pair Corralation between Warner Music and Fox Corp
Considering the 90-day investment horizon Warner Music is expected to generate 8.72 times less return on investment than Fox Corp. In addition to that, Warner Music is 1.32 times more volatile than Fox Corp Class. It trades about 0.01 of its total potential returns per unit of risk. Fox Corp Class is currently generating about 0.06 per unit of volatility. If you would invest 3,105 in Fox Corp Class on August 24, 2024 and sell it today you would earn a total of 1,559 from holding Fox Corp Class or generate 50.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Warner Music Group vs. Fox Corp Class
Performance |
| Timeline |
| Warner Music Group |
| Fox Corp Class |
Warner Music and Fox Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Warner Music and Fox Corp
The main advantage of trading using opposite Warner Music and Fox Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Warner Music position performs unexpectedly, Fox Corp 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 Fox Corp will offset losses from the drop in Fox Corp's long position.| Warner Music vs. News Corp A | Warner Music vs. Marcus | Warner Music vs. Liberty Media | Warner Music vs. Fox Corp Class |
| Fox Corp vs. News Corp B | Fox Corp vs. News Corp A | Fox Corp vs. Live Nation Entertainment | Fox Corp vs. Paramount Global Class |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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