Correlation Between Warner Music and New Oriental

Can any of the company-specific risk be diversified away by investing in both Warner Music and New Oriental 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 New Oriental 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 New Oriental Education, you can compare the effects of market volatilities on Warner Music and New Oriental 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 New Oriental. Check out your portfolio center. Please also check ongoing floating volatility patterns of Warner Music and New Oriental.

Diversification Opportunities for Warner Music and New Oriental

-0.2

Correlation Coefficient

Warner Music  New Oriental

Good diversification

The 3 months correlation between Warner and New is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and New Oriental Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Oriental Education 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 New Oriental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Oriental Education has no effect on the direction of Warner Music i.e., Warner Music and New Oriental go up and down completely randomly.

Pair Corralation between Warner Music and New Oriental

Assuming the 90 days trading horizon Warner Music Group is expected to generate 0.43 times more return on investment than New Oriental. However, Warner Music Group is 2.33 times less risky than New Oriental. It trades about 0.19 of its potential returns per unit of risk. New Oriental Education is currently generating about 0.06 per unit of risk. If you would invest  4,094  in Warner Music Group on September 17, 2024 and sell it today you would earn a total of  781.00  from holding Warner Music Group or generate 19.08% return on investment over 90 days.

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

Warner Music Group  vs.  New Oriental Education

Warner Music Group

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Warner Music Group are ranked lower than 15 (%) 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.

New Oriental Education

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in New Oriental Education are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain fundamental indicators, New Oriental sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Warner Music and New Oriental

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

The idea behind Warner Music Group and New Oriental Education 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.