Correlation Between CSL and Warner Music

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

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

Diversification Opportunities for CSL and Warner Music

-0.68

Correlation Coefficient

CSL  Warner Music

Excellent diversification

The 3 months correlation between CSL and Warner is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding CSL Limited 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 CSL 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 CSL Limited 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 CSL i.e., CSL and Warner Music go up and down completely randomly.

Pair Corralation between CSL and Warner Music

Assuming the 90 days horizon CSL is expected to generate 17.5 times less return on investment than Warner Music. But when comparing it to its historical volatility, CSL Limited is 1.47 times less risky than Warner Music. It trades about 0.0 of its potential returns per unit of risk. Warner Music Group is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  3,149  in Warner Music Group on September 12, 2024 and sell it today you would lose (90.00) from holding Warner Music Group or give up 2.86% of portfolio value over 90 days.

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

CSL Limited  vs.  Warner Music Group

CSL Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CSL Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Warner Music Group

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Warner Music Group are ranked lower than 15 (%) 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 CSL and Warner Music

The main advantage of trading using opposite CSL and Warner Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CSL 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 CSL Limited 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.