Correlation Between Warner Music and Universal Media
Can any of the company-specific risk be diversified away by investing in both Warner Music and Universal Media 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 Universal Media 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 Universal Media Group, you can compare the effects of market volatilities on Warner Music and Universal Media 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 Universal Media. Check out your portfolio center. Please also check ongoing floating volatility patterns of Warner Music and Universal Media.
Diversification Opportunities for Warner Music and Universal Media
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Warner and Universal is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and Universal Media Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Media 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 Universal Media. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Media Group has no effect on the direction of Warner Music i.e., Warner Music and Universal Media go up and down completely randomly.
Pair Corralation between Warner Music and Universal Media
Considering the 90-day investment horizon Warner Music Group is expected to under-perform the Universal Media. But the stock apears to be less risky and, when comparing its historical volatility, Warner Music Group is 7.93 times less risky than Universal Media. The stock trades about -0.01 of its potential returns per unit of risk. The Universal Media Group is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 14.00 in Universal Media Group on November 4, 2024 and sell it today you would lose (10.70) from holding Universal Media Group or give up 76.43% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Warner Music Group vs. Universal Media Group
Performance |
| Timeline |
| Warner Music Group |
| Universal Media Group |
Warner Music and Universal Media Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Warner Music and Universal Media
The main advantage of trading using opposite Warner Music and Universal Media positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Warner Music position performs unexpectedly, Universal Media 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 Universal Media will offset losses from the drop in Universal Media's long position.| Warner Music vs. Liberty Media | Warner Music vs. Atlanta Braves Holdings, | Warner Music vs. News Corp B | Warner Music vs. News Corp A |
| Universal Media vs. Precision Drilling | Universal Media vs. Borr Drilling | Universal Media vs. Ralph Lauren Corp | Universal Media vs. Sable Offshore Corp |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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