Correlation Between Warner Music and Alphabet

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

Diversification Opportunities for Warner Music and Alphabet

-0.49

Correlation Coefficient

Warner Music  Alphabet

Very good diversification

The 3 months correlation between Warner and Alphabet is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and Alphabet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alphabet 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 Alphabet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alphabet has no effect on the direction of Warner Music i.e., Warner Music and Alphabet go up and down completely randomly.

Pair Corralation between Warner Music and Alphabet

Assuming the 90 days trading horizon Warner Music Group is expected to generate 1.02 times more return on investment than Alphabet. However, Warner Music is 1.02 times more volatile than Alphabet. It trades about 0.16 of its potential returns per unit of risk. Alphabet is currently generating about -0.43 per unit of risk. If you would invest  4,634  in Warner Music Group on December 5, 2024 and sell it today you would earn a total of  258.00  from holding Warner Music Group or generate 5.57% return on investment over 90 days.

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

Warner Music Group  vs.  Alphabet

Warner Music Group

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Warner Music Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong primary indicators, Warner Music is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Alphabet

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alphabet has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, Alphabet is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Warner Music and Alphabet

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

The idea behind Warner Music Group and Alphabet 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.