Correlation Between QBE Insurance and Warner Music

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

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

Diversification Opportunities for QBE Insurance and Warner Music

0.4

Correlation Coefficient

QBE Insurance  Warner Music

Very weak diversification

The 3 months correlation between QBE and Warner is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding QBE Insurance Group 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 QBE Insurance 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 QBE Insurance Group 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 QBE Insurance i.e., QBE Insurance and Warner Music go up and down completely randomly.

Pair Corralation between QBE Insurance and Warner Music

Assuming the 90 days horizon QBE Insurance Group is expected to generate 0.87 times more return on investment than Warner Music. However, QBE Insurance Group is 1.14 times less risky than Warner Music. It trades about 0.15 of its potential returns per unit of risk. Warner Music Group is currently generating about 0.01 per unit of risk. If you would invest  1,117  in QBE Insurance Group on December 27, 2024 and sell it today you would earn a total of  183.00  from holding QBE Insurance Group or generate 16.38% return on investment over 90 days.

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

QBE Insurance Group  vs.  Warner Music Group

QBE Insurance Group

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in QBE Insurance Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, QBE Insurance reported solid returns over the last few months and may actually be approaching a breakup point.

Warner Music Group

Risk-Adjusted Performance

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 basic indicators, Warner Music is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with QBE Insurance and Warner Music

The main advantage of trading using opposite QBE Insurance and Warner Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if QBE Insurance 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 QBE Insurance Group 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.