Correlation Between Etsy and Warner Bros

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

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

Diversification Opportunities for Etsy and Warner Bros

0.77

Correlation Coefficient

Etsy  Warner Bros

Poor diversification

The 3 months correlation between Etsy and Warner is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Etsy Inc and Warner Bros Discovery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Warner Bros Discovery and Etsy 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 Etsy Inc are associated (or correlated) with Warner Bros. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Warner Bros Discovery has no effect on the direction of Etsy i.e., Etsy and Warner Bros go up and down completely randomly.

Pair Corralation between Etsy and Warner Bros

Given the investment horizon of 90 days Etsy is expected to generate 4.65 times less return on investment than Warner Bros. But when comparing it to its historical volatility, Etsy Inc is 1.34 times less risky than Warner Bros. It trades about 0.04 of its potential returns per unit of risk. Warner Bros Discovery is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  816.00  in Warner Bros Discovery on September 21, 2024 and sell it today you would earn a total of  233.00  from holding Warner Bros Discovery or generate 28.55% return on investment over 90 days.

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

Etsy Inc  vs.  Warner Bros Discovery

Etsy Inc

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Etsy Inc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Etsy is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Warner Bros Discovery

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Warner Bros Discovery are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental drivers, Warner Bros exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Etsy and Warner Bros

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

The idea behind Etsy Inc and Warner Bros Discovery 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.