Correlation Between Warner Music and Nucor

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

Diversification Opportunities for Warner Music and Nucor

0.55

Correlation Coefficient

Warner Music  Nucor

Very weak diversification

The 3 months correlation between Warner and Nucor is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and Nucor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nucor 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 Nucor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nucor has no effect on the direction of Warner Music i.e., Warner Music and Nucor go up and down completely randomly.

Pair Corralation between Warner Music and Nucor

Assuming the 90 days trading horizon Warner Music Group is expected to generate 0.86 times more return on investment than Nucor. However, Warner Music Group is 1.16 times less risky than Nucor. It trades about -0.01 of its potential returns per unit of risk. Nucor is currently generating about -0.02 per unit of risk. If you would invest  4,744  in Warner Music Group on December 23, 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	Weak
Accuracy	100.0%
Values	Daily Returns

Warner Music Group  vs.  Nucor

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.

Nucor

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nucor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Nucor 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 Nucor

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

The idea behind Warner Music Group and Nucor 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.