Correlation Between Methode Electronics and Warner Music

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

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

Diversification Opportunities for Methode Electronics and Warner Music

0.19

Correlation Coefficient

Methode Electronics  Warner Music

Average diversification

The 3 months correlation between Methode and Warner is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Methode Electronics 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 Methode Electronics 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 Methode Electronics 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 Methode Electronics i.e., Methode Electronics and Warner Music go up and down completely randomly.

Pair Corralation between Methode Electronics and Warner Music

Assuming the 90 days trading horizon Methode Electronics is expected to under-perform the Warner Music. In addition to that, Methode Electronics is 1.99 times more volatile than Warner Music Group. It trades about -0.04 of its total potential returns per unit of risk. Warner Music Group is currently generating about 0.0 per unit of volatility. If you would invest  3,363  in Warner Music Group on September 30, 2024 and sell it today you would lose (361.00) from holding Warner Music Group or give up 10.73% of portfolio value over 90 days.

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

Methode Electronics  vs.  Warner Music Group

Methode Electronics

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Methode Electronics are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Methode Electronics reported solid returns over the last few months and may actually be approaching a breakup point.

Warner Music Group

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Warner Music Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Warner Music may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Methode Electronics and Warner Music

The main advantage of trading using opposite Methode Electronics and Warner Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Methode Electronics 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 Methode Electronics 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.