Correlation Between Warner Music and Newell Brands

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

Diversification Opportunities for Warner Music and Newell Brands

-0.33

Correlation Coefficient

Warner Music  Newell Brands

Very good diversification

The 3 months correlation between Warner and Newell is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and Newell Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Newell Brands 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 Newell Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Newell Brands has no effect on the direction of Warner Music i.e., Warner Music and Newell Brands go up and down completely randomly.

Pair Corralation between Warner Music and Newell Brands

Assuming the 90 days trading horizon Warner Music Group is expected to generate 0.4 times more return on investment than Newell Brands. However, Warner Music Group is 2.52 times less risky than Newell Brands. It trades about -0.02 of its potential returns per unit of risk. Newell Brands is currently generating about -0.17 per unit of risk. If you would invest  4,818  in Warner Music Group on December 24, 2024 and sell it today you would lose (160.00) from holding Warner Music Group or give up 3.32% of portfolio value over 90 days.

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

Warner Music Group  vs.  Newell Brands

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 newest stock price disturbance, may contribute to short-term losses for the investors.

Newell Brands

Risk-Adjusted Performance

Very Weak

Over the last 90 days Newell Brands has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Warner Music and Newell Brands

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

The idea behind Warner Music Group and Newell Brands 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.