Correlation Between Lions Gate and Warner Bros

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

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

Diversification Opportunities for Lions Gate and Warner Bros

0.65

Correlation Coefficient

Lions Gate  Warner Bros

Poor diversification

The 3 months correlation between Lions and Warner is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Lions Gate Entertainment 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 Lions Gate 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 Lions Gate Entertainment 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 Lions Gate i.e., Lions Gate and Warner Bros go up and down completely randomly.

Pair Corralation between Lions Gate and Warner Bros

Assuming the 90 days horizon Lions Gate Entertainment is expected to generate 1.05 times more return on investment than Warner Bros. However, Lions Gate is 1.05 times more volatile than Warner Bros Discovery. It trades about 0.03 of its potential returns per unit of risk. Warner Bros Discovery is currently generating about 0.02 per unit of risk. If you would invest  526.00  in Lions Gate Entertainment on September 24, 2024 and sell it today you would earn a total of  184.00  from holding Lions Gate Entertainment or generate 34.98% return on investment over 90 days.

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

Lions Gate Entertainment  vs.  Warner Bros Discovery

Lions Gate Entertainment

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lions Gate Entertainment are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Lions Gate may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 Lions Gate and Warner Bros

The main advantage of trading using opposite Lions Gate and Warner Bros positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lions Gate 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 Lions Gate Entertainment 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.