Correlation Between Warner Music and WPP PLC
Can any of the company-specific risk be diversified away by investing in both Warner Music and WPP PLC 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 WPP PLC 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 WPP PLC ADR, you can compare the effects of market volatilities on Warner Music and WPP PLC 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 WPP PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Warner Music and WPP PLC.
Diversification Opportunities for Warner Music and WPP PLC
0.45 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Warner and WPP is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and WPP PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WPP PLC ADR 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 WPP PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WPP PLC ADR has no effect on the direction of Warner Music i.e., Warner Music and WPP PLC go up and down completely randomly.
Pair Corralation between Warner Music and WPP PLC
Considering the 90-day investment horizon Warner Music Group is expected to generate 1.15 times more return on investment than WPP PLC. However, Warner Music is 1.15 times more volatile than WPP PLC ADR. It trades about 0.03 of its potential returns per unit of risk. WPP PLC ADR is currently generating about -0.01 per unit of risk. If you would invest 3,003 in Warner Music Group on November 20, 2024 and sell it today you would earn a total of 627.00 from holding Warner Music Group or generate 20.88% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Warner Music Group vs. WPP PLC ADR
Performance |
| Timeline |
| Warner Music Group |
| WPP PLC ADR |
Warner Music and WPP PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Warner Music and WPP PLC
The main advantage of trading using opposite Warner Music and WPP PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Warner Music position performs unexpectedly, WPP PLC 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 WPP PLC will offset losses from the drop in WPP PLC's long position.| Warner Music vs. Lions Gate Entertainment | Warner Music vs. AMC Networks | Warner Music vs. Altice USA | Warner Music vs. Liberty Broadband Srs |
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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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