Correlation Between Major League and Warner Bros

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

By analyzing existing cross correlation between Major League Football and Warner Bros Discovery, you can compare the effects of market volatilities on Major League and Warner Bros 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 Major League with a short position of Warner Bros. Check out your portfolio center. Please also check ongoing floating volatility patterns of Major League and Warner Bros.

Diversification Opportunities for Major League and Warner Bros

0.0

Correlation Coefficient

Major League  Warner Bros

Pay attention - limited upside

The 3 months correlation between Major and Warner is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Major League Football and Warner Bros Discovery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Warner Bros Discovery and Major League 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 Major League Football are associated (or correlated) with Warner Bros. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Warner Bros Discovery has no effect on the direction of Major League i.e., Major League and Warner Bros go up and down completely randomly.

Pair Corralation between Major League and Warner Bros

Given the investment horizon of 90 days Major League Football is expected to generate 3.75 times more return on investment than Warner Bros. However, Major League is 3.75 times more volatile than Warner Bros Discovery. It trades about 0.02 of its potential returns per unit of risk. Warner Bros Discovery is currently generating about 0.04 per unit of risk. If you would invest  0.12  in Major League Football on September 14, 2024 and sell it today you would lose (0.11) from holding Major League Football or give up 91.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Major League Football  vs.  Warner Bros Discovery

Major League Football

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Major League Football has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, Major League is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Warner Bros Discovery

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Warner Bros Discovery are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental drivers, Warner Bros exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Major League and Warner Bros

The main advantage of trading using opposite Major League and Warner Bros positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Major League position performs unexpectedly, Warner Bros 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 Bros will offset losses from the drop in Warner Bros' long position.

The idea behind Major League Football and Warner Bros Discovery 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.

Check out your portfolio center.

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.