Correlation Between Warner Music and Hitachi Construction

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

Diversification Opportunities for Warner Music and Hitachi Construction

-0.4

Correlation Coefficient

Warner Music  Hitachi Construction

Very good diversification

The 3 months correlation between Warner and Hitachi is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and Hitachi Construction Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hitachi Construction 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 Hitachi Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hitachi Construction has no effect on the direction of Warner Music i.e., Warner Music and Hitachi Construction go up and down completely randomly.

Pair Corralation between Warner Music and Hitachi Construction

Assuming the 90 days horizon Warner Music Group is expected to generate 0.82 times more return on investment than Hitachi Construction. However, Warner Music Group is 1.22 times less risky than Hitachi Construction. It trades about 0.15 of its potential returns per unit of risk. Hitachi Construction Machinery is currently generating about -0.02 per unit of risk. If you would invest  2,688  in Warner Music Group on September 20, 2024 and sell it today you would earn a total of  398.00  from holding Warner Music Group or generate 14.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Warner Music Group  vs.  Hitachi Construction Machinery

Warner Music Group

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Warner Music Group are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Warner Music reported solid returns over the last few months and may actually be approaching a breakup point.

Hitachi Construction

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hitachi Construction Machinery has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Hitachi Construction is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Warner Music and Hitachi Construction

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

The idea behind Warner Music Group and Hitachi Construction Machinery 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 Global Correlations module to find global opportunities by holding instruments from different markets.