Correlation Between Denison Mines and Warner Music

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

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

Diversification Opportunities for Denison Mines and Warner Music

0.6

Correlation Coefficient

Denison Mines  Warner Music

Poor diversification

The 3 months correlation between Denison and Warner is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Denison Mines Corp 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 Denison Mines 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 Denison Mines Corp 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 Denison Mines i.e., Denison Mines and Warner Music go up and down completely randomly.

Pair Corralation between Denison Mines and Warner Music

Considering the 90-day investment horizon Denison Mines Corp is expected to generate 2.88 times more return on investment than Warner Music. However, Denison Mines is 2.88 times more volatile than Warner Music Group. It trades about -0.03 of its potential returns per unit of risk. Warner Music Group is currently generating about -0.09 per unit of risk. If you would invest  195.00  in Denison Mines Corp on October 22, 2024 and sell it today you would lose (7.00) from holding Denison Mines Corp or give up 3.59% of portfolio value over 90 days.

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

Denison Mines Corp  vs.  Warner Music Group

Denison Mines Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Denison Mines Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm 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 Denison Mines and Warner Music

The main advantage of trading using opposite Denison Mines and Warner Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Denison Mines 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 Denison Mines Corp 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.