Correlation Between Warner Music and Lam Research

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

Diversification Opportunities for Warner Music and Lam Research

0.13

Correlation Coefficient

Warner Music  Lam Research

Average diversification

The 3 months correlation between Warner and Lam is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and Lam Research in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lam Research 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 Lam Research. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lam Research has no effect on the direction of Warner Music i.e., Warner Music and Lam Research go up and down completely randomly.

Pair Corralation between Warner Music and Lam Research

Assuming the 90 days trading horizon Warner Music Group is expected to generate 0.65 times more return on investment than Lam Research. However, Warner Music Group is 1.54 times less risky than Lam Research. It trades about -0.01 of its potential returns per unit of risk. Lam Research is currently generating about -0.02 per unit of risk. If you would invest  4,744  in Warner Music Group on December 22, 2024 and sell it today you would lose (86.00) from holding Warner Music Group or give up 1.81% of portfolio value over 90 days.

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

Warner Music Group  vs.  Lam Research

Warner Music Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Warner Music Group has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Lam Research

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Warner Music and Lam Research

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

The idea behind Warner Music Group and Lam Research 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.