Correlation Between Algonquin Power and Warner Music

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

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

Diversification Opportunities for Algonquin Power and Warner Music

-0.69

Correlation Coefficient

Algonquin Power  Warner Music

Excellent diversification

The 3 months correlation between Algonquin and Warner is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Algonquin Power Utilities 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 Algonquin Power 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 Algonquin Power Utilities 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 Algonquin Power i.e., Algonquin Power and Warner Music go up and down completely randomly.

Pair Corralation between Algonquin Power and Warner Music

Assuming the 90 days horizon Algonquin Power Utilities is expected to under-perform the Warner Music. But the stock apears to be less risky and, when comparing its historical volatility, Algonquin Power Utilities is 1.04 times less risky than Warner Music. The stock trades about -0.02 of its potential returns per unit of risk. The Warner Music Group is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  3,110  in Warner Music Group on September 21, 2024 and sell it today you would lose (77.00) from holding Warner Music Group or give up 2.48% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Algonquin Power Utilities  vs.  Warner Music Group

Algonquin Power Utilities

Risk-Adjusted Performance

0 of 100

Very Weak

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

Warner Music Group

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Warner Music Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Warner Music reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Algonquin Power and Warner Music

The main advantage of trading using opposite Algonquin Power and Warner Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Algonquin Power 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 Algonquin Power Utilities 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.