Correlation Between Warner Music and AMC Entertainment

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

Diversification Opportunities for Warner Music and AMC Entertainment

-0.53

Correlation Coefficient

Warner Music  AMC Entertainment

Excellent diversification

The 3 months correlation between Warner and AMC is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and AMC Entertainment Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AMC Entertainment 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 AMC Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AMC Entertainment has no effect on the direction of Warner Music i.e., Warner Music and AMC Entertainment go up and down completely randomly.

Pair Corralation between Warner Music and AMC Entertainment

Considering the 90-day investment horizon Warner Music Group is expected to generate 0.57 times more return on investment than AMC Entertainment. However, Warner Music Group is 1.75 times less risky than AMC Entertainment. It trades about 0.18 of its potential returns per unit of risk. AMC Entertainment Holdings is currently generating about 0.05 per unit of risk. 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 Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Warner Music Group  vs.  AMC Entertainment Holdings

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.

AMC Entertainment

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in AMC Entertainment Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting primary indicators, AMC Entertainment may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Warner Music and AMC Entertainment

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

The idea behind Warner Music Group and AMC Entertainment Holdings 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.