Correlation Between Reservoir Media and Warner Bros

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

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

Diversification Opportunities for Reservoir Media and Warner Bros

0.67

Correlation Coefficient

Reservoir Media  Warner Bros

Poor diversification

The 3 months correlation between Reservoir and Warner is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Reservoir Media 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 Reservoir Media 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 Reservoir Media 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 Reservoir Media i.e., Reservoir Media and Warner Bros go up and down completely randomly.

Pair Corralation between Reservoir Media and Warner Bros

Given the investment horizon of 90 days Reservoir Media is expected to under-perform the Warner Bros. But the stock apears to be less risky and, when comparing its historical volatility, Reservoir Media is 1.57 times less risky than Warner Bros. The stock trades about -0.02 of its potential returns per unit of risk. The Warner Bros Discovery is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,011  in Warner Bros Discovery on September 23, 2024 and sell it today you would earn a total of  58.00  from holding Warner Bros Discovery or generate 5.74% return on investment over 90 days.

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

Reservoir Media  vs.  Warner Bros Discovery

Reservoir Media

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Reservoir Media are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Reservoir Media reported solid returns over the last few months and may actually be approaching a breakup point.

Warner Bros Discovery

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Warner Bros Discovery are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental drivers, Warner Bros exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Reservoir Media and Warner Bros

The main advantage of trading using opposite Reservoir Media and Warner Bros positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Reservoir Media 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 Reservoir Media 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.

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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 Bonds Directory module to find actively traded corporate debentures issued by US companies.