Correlation Between Warner Music and Electronic Arts
Can any of the company-specific risk be diversified away by investing in both Warner Music and Electronic Arts 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 Electronic Arts 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 Electronic Arts, you can compare the effects of market volatilities on Warner Music and Electronic Arts 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 Electronic Arts. Check out your portfolio center. Please also check ongoing floating volatility patterns of Warner Music and Electronic Arts.
Diversification Opportunities for Warner Music and Electronic Arts
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Warner and Electronic is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and Electronic Arts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electronic Arts 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 Electronic Arts. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electronic Arts has no effect on the direction of Warner Music i.e., Warner Music and Electronic Arts go up and down completely randomly.
Pair Corralation between Warner Music and Electronic Arts
Assuming the 90 days trading horizon Warner Music is expected to generate 2.88 times less return on investment than Electronic Arts. In addition to that, Warner Music is 1.29 times more volatile than Electronic Arts. It trades about 0.02 of its total potential returns per unit of risk. Electronic Arts is currently generating about 0.07 per unit of volatility. If you would invest 31,729 in Electronic Arts on September 6, 2024 and sell it today you would earn a total of 18,863 from holding Electronic Arts or generate 59.45% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 98.17% |
Values | Daily Returns |
Warner Music Group vs. Electronic Arts
Performance |
Timeline |
Warner Music Group |
Electronic Arts |
Warner Music and Electronic Arts Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Warner Music and Electronic Arts
The main advantage of trading using opposite Warner Music and Electronic Arts positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Warner Music position performs unexpectedly, Electronic Arts 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 Electronic Arts will offset losses from the drop in Electronic Arts' long position.Warner Music vs. Spotify Technology SA | Warner Music vs. Monster Beverage | Warner Music vs. United States Steel | Warner Music vs. Credit Acceptance |
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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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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