Correlation Between Warner Music and Videolocity International

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

Diversification Opportunities for Warner Music and Videolocity International

0.0

Correlation Coefficient

Warner Music  Videolocity International

Pay attention - limited upside

The 3 months correlation between Warner and Videolocity is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and Videolocity International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Videolocity International 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 Videolocity International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Videolocity International has no effect on the direction of Warner Music i.e., Warner Music and Videolocity International go up and down completely randomly.

Pair Corralation between Warner Music and Videolocity International

If you would invest  2,802  in Warner Music Group on September 5, 2024 and sell it today you would earn a total of  432.00  from holding Warner Music Group or generate 15.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Warner Music Group  vs.  Videolocity International

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.

Videolocity International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Videolocity International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Videolocity International is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Warner Music and Videolocity International

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

The idea behind Warner Music Group and Videolocity International 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.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.