Correlation Between Addus HomeCare and Warner Music

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

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

Diversification Opportunities for Addus HomeCare and Warner Music

-0.35

Correlation Coefficient

Addus HomeCare  Warner Music

Very good diversification

The 3 months correlation between Addus and Warner is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Addus HomeCare 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 Addus HomeCare 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 Addus HomeCare 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 Addus HomeCare i.e., Addus HomeCare and Warner Music go up and down completely randomly.

Pair Corralation between Addus HomeCare and Warner Music

Given the investment horizon of 90 days Addus HomeCare is expected to generate 1.18 times more return on investment than Warner Music. However, Addus HomeCare is 1.18 times more volatile than Warner Music Group. It trades about 0.02 of its potential returns per unit of risk. Warner Music Group is currently generating about -0.01 per unit of risk. If you would invest  10,983  in Addus HomeCare on October 15, 2024 and sell it today you would earn a total of  1,551  from holding Addus HomeCare or generate 14.12% return on investment over 90 days.

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

Addus HomeCare  vs.  Warner Music Group

Addus HomeCare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Addus HomeCare has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Addus HomeCare is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

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 primary 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 Addus HomeCare and Warner Music

The main advantage of trading using opposite Addus HomeCare and Warner Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Addus HomeCare 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 Addus HomeCare 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..