Correlation Between Citizens Financial and Warner Music

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

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

Diversification Opportunities for Citizens Financial and Warner Music

0.61

Correlation Coefficient

Citizens Financial  Warner Music

Poor diversification

The 3 months correlation between Citizens and Warner is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Citizens Financial Group, 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 Citizens Financial 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 Citizens Financial Group, 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 Citizens Financial i.e., Citizens Financial and Warner Music go up and down completely randomly.

Pair Corralation between Citizens Financial and Warner Music

Assuming the 90 days trading horizon Citizens Financial Group, is expected to generate 1.21 times more return on investment than Warner Music. However, Citizens Financial is 1.21 times more volatile than Warner Music Group. It trades about 0.04 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  20,263  in Citizens Financial Group, on October 23, 2024 and sell it today you would earn a total of  8,717  from holding Citizens Financial Group, or generate 43.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.96%
Values	Daily Returns

Citizens Financial Group,  vs.  Warner Music Group

Citizens Financial Group,

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Citizens Financial Group, are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain technical and fundamental indicators, Citizens Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Warner Music Group

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Warner Music Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong primary indicators, Warner Music is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Citizens Financial and Warner Music

The main advantage of trading using opposite Citizens Financial and Warner Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Citizens Financial 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 Citizens Financial Group, 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.