Correlation Between Archrock and Warner Music

Can any of the company-specific risk be diversified away by investing in both Archrock and Warner Music 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 Archrock and Warner Music into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Archrock and Warner Music Group, you can compare the effects of market volatilities on Archrock and Warner Music 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 Archrock with a short position of Warner Music. Check out your portfolio center. Please also check ongoing floating volatility patterns of Archrock and Warner Music.

Diversification Opportunities for Archrock and Warner Music

0.67

Correlation Coefficient

Archrock  Warner Music

Poor diversification

The 3 months correlation between Archrock and Warner is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Archrock and Warner Music Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Warner Music Group and Archrock 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 Archrock are associated (or correlated) with Warner Music. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Warner Music Group has no effect on the direction of Archrock i.e., Archrock and Warner Music go up and down completely randomly.

Pair Corralation between Archrock and Warner Music

Given the investment horizon of 90 days Archrock is expected to generate 1.69 times more return on investment than Warner Music. However, Archrock is 1.69 times more volatile than Warner Music Group. It trades about 0.38 of its potential returns per unit of risk. Warner Music Group is currently generating about 0.04 per unit of risk. If you would invest  2,002  in Archrock on September 5, 2024 and sell it today you would earn a total of  590.00  from holding Archrock or generate 29.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Archrock  vs.  Warner Music Group

Archrock

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Archrock are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Archrock exhibited solid returns over the last few months and may actually be approaching a breakup point.

Warner Music Group

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Warner Music Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak primary indicators, Warner Music reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Archrock and Warner Music

The main advantage of trading using opposite Archrock and Warner Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Archrock position performs unexpectedly, Warner Music 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 Warner Music will offset losses from the drop in Warner Music's long position.

The idea behind Archrock and Warner Music Group pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.