Correlation Between Warner Music and SkyWest
Can any of the company-specific risk be diversified away by investing in both Warner Music and SkyWest 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 SkyWest 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 SkyWest, you can compare the effects of market volatilities on Warner Music and SkyWest 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 SkyWest. Check out your portfolio center. Please also check ongoing floating volatility patterns of Warner Music and SkyWest.
Diversification Opportunities for Warner Music and SkyWest
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Warner and SkyWest is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and SkyWest in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SkyWest 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 SkyWest. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SkyWest has no effect on the direction of Warner Music i.e., Warner Music and SkyWest go up and down completely randomly.
Pair Corralation between Warner Music and SkyWest
Considering the 90-day investment horizon Warner Music Group is expected to under-perform the SkyWest. But the stock apears to be less risky and, when comparing its historical volatility, Warner Music Group is 1.32 times less risky than SkyWest. The stock trades about -0.07 of its potential returns per unit of risk. The SkyWest is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest 9,401 in SkyWest on August 26, 2024 and sell it today you would earn a total of 1,789 from holding SkyWest or generate 19.03% 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. SkyWest
Performance |
| Timeline |
| Warner Music Group |
| SkyWest |
Warner Music and SkyWest Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Warner Music and SkyWest
The main advantage of trading using opposite Warner Music and SkyWest positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Warner Music position performs unexpectedly, SkyWest 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 SkyWest will offset losses from the drop in SkyWest's long position.| Warner Music vs. ADTRAN Inc | Warner Music vs. Belden Inc | Warner Music vs. ADC Therapeutics SA | Warner Music vs. Comtech Telecommunications Corp |
| SkyWest vs. Copa Holdings SA | SkyWest vs. Sun Country Airlines | SkyWest vs. Air Transport Services | SkyWest vs. Frontier Group Holdings |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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