Correlation Between Swiss Life and Warner Music

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

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

Diversification Opportunities for Swiss Life and Warner Music

0.33

Correlation Coefficient

Swiss Life  Warner Music

Weak diversification

The 3 months correlation between Swiss and Warner is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Swiss Life Holding 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 Swiss Life 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 Swiss Life Holding 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 Swiss Life i.e., Swiss Life and Warner Music go up and down completely randomly.

Pair Corralation between Swiss Life and Warner Music

Assuming the 90 days trading horizon Swiss Life Holding is expected to generate 1.15 times more return on investment than Warner Music. However, Swiss Life is 1.15 times more volatile than Warner Music Group. It trades about 0.06 of its potential returns per unit of risk. Warner Music Group is currently generating about 0.0 per unit of risk. If you would invest  2,168  in Swiss Life Holding on September 29, 2024 and sell it today you would earn a total of  1,592  from holding Swiss Life Holding or generate 73.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Swiss Life Holding  vs.  Warner Music Group

Swiss Life Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Swiss Life Holding has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Swiss Life is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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 uncertain basic indicators, Warner Music may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Swiss Life and Warner Music

The main advantage of trading using opposite Swiss Life and Warner Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Swiss Life 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 Swiss Life Holding 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.