Correlation Between Charter Communications and Warner Music

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

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

Diversification Opportunities for Charter Communications and Warner Music

0.08

Correlation Coefficient

Charter Communications  Warner Music

Significant diversification

The 3 months correlation between Charter and Warner is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Charter Communications 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 Charter Communications 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 Charter Communications 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 Charter Communications i.e., Charter Communications and Warner Music go up and down completely randomly.

Pair Corralation between Charter Communications and Warner Music

Assuming the 90 days trading horizon Charter Communications is expected to under-perform the Warner Music. In addition to that, Charter Communications is 1.31 times more volatile than Warner Music Group. It trades about -0.06 of its total potential returns per unit of risk. Warner Music Group is currently generating about 0.02 per unit of volatility. If you would invest  4,858  in Warner Music Group on December 2, 2024 and sell it today you would earn a total of  34.00  from holding Warner Music Group or generate 0.7% return on investment over 90 days.

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

Charter Communications  vs.  Warner Music Group

Charter Communications

Risk-Adjusted Performance

Very Weak

Over the last 90 days Charter Communications has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Warner Music Group

Risk-Adjusted Performance

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 current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Charter Communications and Warner Music

The main advantage of trading using opposite Charter Communications and Warner Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Charter Communications 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 Charter Communications 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.