Correlation Between Warner Music and Vivendi SA

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

Diversification Opportunities for Warner Music and Vivendi SA

-0.01

Correlation Coefficient

Warner Music  Vivendi SA

Good diversification

The 3 months correlation between Warner and Vivendi is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and Vivendi SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vivendi SA 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 Vivendi SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vivendi SA has no effect on the direction of Warner Music i.e., Warner Music and Vivendi SA go up and down completely randomly.

Pair Corralation between Warner Music and Vivendi SA

Considering the 90-day investment horizon Warner Music Group is expected to generate 1.1 times more return on investment than Vivendi SA. However, Warner Music is 1.1 times more volatile than Vivendi SA. It trades about 0.17 of its potential returns per unit of risk. Vivendi SA is currently generating about 0.14 per unit of risk. If you would invest  2,779  in Warner Music Group on August 31, 2024 and sell it today you would earn a total of  431.00  from holding Warner Music Group or generate 15.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	34.92%
Values	Daily Returns

Warner Music Group  vs.  Vivendi SA

Warner Music Group

Risk-Adjusted Performance

13 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Warner Music Group are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain primary indicators, Warner Music reported solid returns over the last few months and may actually be approaching a breakup point.

Vivendi SA

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Vivendi SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly weak technical and fundamental indicators, Vivendi SA may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Warner Music and Vivendi SA

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

The idea behind Warner Music Group and Vivendi SA 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.