Correlation Between Warner Music and Paramount Global

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

Diversification Opportunities for Warner Music and Paramount Global

-0.77

Correlation Coefficient

Warner Music  Paramount Global

Pay attention - limited upside

The 3 months correlation between Warner and Paramount is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and Paramount Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Paramount Global 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 Paramount Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Paramount Global has no effect on the direction of Warner Music i.e., Warner Music and Paramount Global go up and down completely randomly.

Pair Corralation between Warner Music and Paramount Global

If you would invest  2,794  in Warner Music Group on September 4, 2024 and sell it today you would earn a total of  423.00  from holding Warner Music Group or generate 15.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	1.59%
Values	Daily Returns

Warner Music Group  vs.  Paramount Global

Warner Music Group

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Warner Music Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak primary indicators, Warner Music reported solid returns over the last few months and may actually be approaching a breakup point.

Paramount Global

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Paramount Global has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Paramount Global is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Warner Music and Paramount Global

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

The idea behind Warner Music Group and Paramount Global 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.