Correlation Between Warner Music and HEXAGON AB

Can any of the company-specific risk be diversified away by investing in both Warner Music and HEXAGON AB 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 HEXAGON AB 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 HEXAGON AB ADR1, you can compare the effects of market volatilities on Warner Music and HEXAGON AB 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 HEXAGON AB. Check out your portfolio center. Please also check ongoing floating volatility patterns of Warner Music and HEXAGON AB.

Diversification Opportunities for Warner Music and HEXAGON AB

-0.5

Correlation Coefficient

Warner Music  HEXAGON AB

Very good diversification

The 3 months correlation between Warner and HEXAGON is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and HEXAGON AB ADR1 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HEXAGON AB ADR1 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 HEXAGON AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HEXAGON AB ADR1 has no effect on the direction of Warner Music i.e., Warner Music and HEXAGON AB go up and down completely randomly.

Pair Corralation between Warner Music and HEXAGON AB

Assuming the 90 days horizon Warner Music Group is expected to generate 0.66 times more return on investment than HEXAGON AB. However, Warner Music Group is 1.5 times less risky than HEXAGON AB. It trades about 0.2 of its potential returns per unit of risk. HEXAGON AB ADR1 is currently generating about 0.05 per unit of risk. If you would invest  2,573  in Warner Music Group on September 16, 2024 and sell it today you would earn a total of  549.00  from holding Warner Music Group or generate 21.34% 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.  HEXAGON AB ADR1

Warner Music Group

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Warner Music Group are ranked lower than 15 (%) 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.

HEXAGON AB ADR1

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in HEXAGON AB ADR1 are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, HEXAGON AB may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Warner Music and HEXAGON AB

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

The idea behind Warner Music Group and HEXAGON AB ADR1 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.