Correlation Between Warner Music and Companhia

Can any of the company-specific risk be diversified away by investing in both Warner Music and Companhia 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 Companhia 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 Companhia de Gs, you can compare the effects of market volatilities on Warner Music and Companhia 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 Companhia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Warner Music and Companhia.

Diversification Opportunities for Warner Music and Companhia

0.65

Correlation Coefficient

Warner Music  Companhia

Poor diversification

The 3 months correlation between Warner and Companhia is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and Companhia de Gs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Companhia de Gs 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 Companhia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Companhia de Gs has no effect on the direction of Warner Music i.e., Warner Music and Companhia go up and down completely randomly.

Pair Corralation between Warner Music and Companhia

Assuming the 90 days trading horizon Warner Music Group is expected to generate 0.58 times more return on investment than Companhia. However, Warner Music Group is 1.73 times less risky than Companhia. It trades about 0.21 of its potential returns per unit of risk. Companhia de Gs is currently generating about 0.05 per unit of risk. If you would invest  4,021  in Warner Music Group on September 12, 2024 and sell it today you would earn a total of  866.00  from holding Warner Music Group or generate 21.54% return on investment over 90 days.

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

Warner Music Group  vs.  Companhia de Gs

Warner Music Group

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Warner Music Group are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain primary indicators, Warner Music sustained solid returns over the last few months and may actually be approaching a breakup point.

Companhia de Gs

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Companhia de Gs are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Companhia may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Warner Music and Companhia

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

The idea behind Warner Music Group and Companhia de Gs 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.