Correlation Between Madison Square and Warner Music

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

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

Diversification Opportunities for Madison Square and Warner Music

0.82

Correlation Coefficient

Madison Square  Warner Music

Very poor diversification

The 3 months correlation between Madison and Warner is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Madison Square Garden 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 Madison Square 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 Madison Square Garden 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 Madison Square i.e., Madison Square and Warner Music go up and down completely randomly.

Pair Corralation between Madison Square and Warner Music

Given the investment horizon of 90 days Madison Square is expected to generate 1.42 times less return on investment than Warner Music. But when comparing it to its historical volatility, Madison Square Garden is 1.49 times less risky than Warner Music. It trades about 0.19 of its potential returns per unit of risk. Warner Music Group is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  2,779  in Warner Music Group on September 2, 2024 and sell it today you would earn a total of  473.00  from holding Warner Music Group or generate 17.02% return on investment over 90 days.

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

Madison Square Garden  vs.  Warner Music Group

Madison Square Garden

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Madison Square Garden are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting technical and fundamental indicators, Madison Square may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Warner Music Group

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Warner Music Group are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating primary indicators, Warner Music reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Madison Square and Warner Music

The main advantage of trading using opposite Madison Square and Warner Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Madison Square 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 Madison Square Garden 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.