Correlation Between Warner Music and Citizens Financial

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

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

Diversification Opportunities for Warner Music and Citizens Financial

0.89

Correlation Coefficient

Warner Music  Citizens Financial

Very poor diversification

The 3 months correlation between Warner and Citizens is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and Citizens Financial Group, in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citizens Financial Group, and Warner Music 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 Warner Music Group are associated (or correlated) with Citizens Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Citizens Financial Group, has no effect on the direction of Warner Music i.e., Warner Music and Citizens Financial go up and down completely randomly.

Pair Corralation between Warner Music and Citizens Financial

Assuming the 90 days trading horizon Warner Music Group is expected to generate 0.78 times more return on investment than Citizens Financial. However, Warner Music Group is 1.28 times less risky than Citizens Financial. It trades about -0.04 of its potential returns per unit of risk. Citizens Financial Group, is currently generating about -0.14 per unit of risk. If you would invest  4,845  in Warner Music Group on October 8, 2024 and sell it today you would lose (65.00) from holding Warner Music Group or give up 1.34% of portfolio value over 90 days.

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

Warner Music Group  vs.  Citizens Financial Group,

Warner Music Group

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Warner Music Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak primary indicators, Warner Music sustained solid returns over the last few months and may actually be approaching a breakup point.

Citizens Financial Group,

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Citizens Financial Group, are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Citizens Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Warner Music and Citizens Financial

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

The idea behind Warner Music Group and Citizens Financial 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .