Correlation Between VARIOUS EATERIES and Warner Music

Can any of the company-specific risk be diversified away by investing in both VARIOUS EATERIES and Warner Music 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 VARIOUS EATERIES and Warner Music into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between VARIOUS EATERIES LS and Warner Music Group, you can compare the effects of market volatilities on VARIOUS EATERIES and Warner Music 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 VARIOUS EATERIES with a short position of Warner Music. Check out your portfolio center. Please also check ongoing floating volatility patterns of VARIOUS EATERIES and Warner Music.

Diversification Opportunities for VARIOUS EATERIES and Warner Music

0.22

Correlation Coefficient

VARIOUS EATERIES  Warner Music

Modest diversification

The 3 months correlation between VARIOUS and Warner is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding VARIOUS EATERIES LS and Warner Music Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Warner Music Group and VARIOUS EATERIES 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 VARIOUS EATERIES LS are associated (or correlated) with Warner Music. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Warner Music Group has no effect on the direction of VARIOUS EATERIES i.e., VARIOUS EATERIES and Warner Music go up and down completely randomly.

Pair Corralation between VARIOUS EATERIES and Warner Music

Assuming the 90 days horizon VARIOUS EATERIES LS is expected to under-perform the Warner Music. But the stock apears to be less risky and, when comparing its historical volatility, VARIOUS EATERIES LS is 1.21 times less risky than Warner Music. The stock trades about -0.25 of its potential returns per unit of risk. The Warner Music Group is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  2,984  in Warner Music Group on October 22, 2024 and sell it today you would lose (61.00) from holding Warner Music Group or give up 2.04% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	94.12%
Values	Daily Returns

VARIOUS EATERIES LS  vs.  Warner Music Group

VARIOUS EATERIES

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VARIOUS EATERIES LS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Warner Music Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Warner Music Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Warner Music is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with VARIOUS EATERIES and Warner Music

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

The idea behind VARIOUS EATERIES LS and Warner Music Group 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.