Correlation Between Stepan and Warner Music

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Can any of the company-specific risk be diversified away by investing in both Stepan 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 Stepan and Warner Music into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Stepan Company and Warner Music Group, you can compare the effects of market volatilities on Stepan 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 Stepan with a short position of Warner Music. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stepan and Warner Music.

Diversification Opportunities for Stepan and Warner Music

0.29
  Correlation Coefficient

Modest diversification

The 3 months correlation between Stepan and Warner is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company 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 Stepan 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 Stepan Company 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 Stepan i.e., Stepan and Warner Music go up and down completely randomly.

Pair Corralation between Stepan and Warner Music

Considering the 90-day investment horizon Stepan Company is expected to under-perform the Warner Music. In addition to that, Stepan is 1.12 times more volatile than Warner Music Group. It trades about -0.4 of its total potential returns per unit of risk. Warner Music Group is currently generating about -0.11 per unit of volatility. If you would invest  3,240  in Warner Music Group on September 27, 2024 and sell it today you would lose (100.00) from holding Warner Music Group or give up 3.09% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Stepan Company  vs.  Warner Music Group

 Performance 
       Timeline  
Stepan Company 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Stepan Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.
Warner Music Group 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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.

Stepan and Warner Music Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Stepan and Warner Music

The main advantage of trading using opposite Stepan and Warner Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stepan 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 Stepan Company 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.
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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.

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