Correlation Between Warner Music and STMicroelectronics
Can any of the company-specific risk be diversified away by investing in both Warner Music and STMicroelectronics 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 STMicroelectronics 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 STMicroelectronics NV, you can compare the effects of market volatilities on Warner Music and STMicroelectronics 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 STMicroelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Warner Music and STMicroelectronics.
Diversification Opportunities for Warner Music and STMicroelectronics
0.01 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Warner and STMicroelectronics is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics 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 STMicroelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STMicroelectronics has no effect on the direction of Warner Music i.e., Warner Music and STMicroelectronics go up and down completely randomly.
Pair Corralation between Warner Music and STMicroelectronics
Assuming the 90 days trading horizon Warner Music Group is expected to generate 0.81 times more return on investment than STMicroelectronics. However, Warner Music Group is 1.23 times less risky than STMicroelectronics. It trades about 0.01 of its potential returns per unit of risk. STMicroelectronics NV is currently generating about -0.01 per unit of risk. If you would invest 4,841 in Warner Music Group on September 25, 2024 and sell it today you would lose (81.00) from holding Warner Music Group or give up 1.67% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Insignificant |
Accuracy | 78.93% |
Values | Daily Returns |
Warner Music Group vs. STMicroelectronics NV
Performance |
Timeline |
Warner Music Group |
STMicroelectronics |
Warner Music and STMicroelectronics Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Warner Music and STMicroelectronics
The main advantage of trading using opposite Warner Music and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Warner Music position performs unexpectedly, STMicroelectronics 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 STMicroelectronics will offset losses from the drop in STMicroelectronics' long position.Warner Music vs. Technos SA | Warner Music vs. Charter Communications | Warner Music vs. STMicroelectronics NV | Warner Music vs. United States Steel |
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Check out your portfolio center.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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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