Correlation Between Warner Music and Roku
Can any of the company-specific risk be diversified away by investing in both Warner Music and Roku 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 Roku 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 Roku Inc, you can compare the effects of market volatilities on Warner Music and Roku 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 Roku. Check out your portfolio center. Please also check ongoing floating volatility patterns of Warner Music and Roku.
Diversification Opportunities for Warner Music and Roku
0.56 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Warner and Roku is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and Roku Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Roku Inc 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 Roku. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Roku Inc has no effect on the direction of Warner Music i.e., Warner Music and Roku go up and down completely randomly.
Pair Corralation between Warner Music and Roku
Assuming the 90 days trading horizon Warner Music is expected to generate 12.28 times less return on investment than Roku. But when comparing it to its historical volatility, Warner Music Group is 1.91 times less risky than Roku. It trades about 0.01 of its potential returns per unit of risk. Roku Inc is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 1,144 in Roku Inc on September 25, 2024 and sell it today you would earn a total of 1,300 from holding Roku Inc or generate 113.64% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 96.8% |
Values | Daily Returns |
Warner Music Group vs. Roku Inc
Performance |
Timeline |
Warner Music Group |
Roku Inc |
Warner Music and Roku Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Warner Music and Roku
The main advantage of trading using opposite Warner Music and Roku positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Warner Music position performs unexpectedly, Roku 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 Roku will offset losses from the drop in Roku's long position.Warner Music vs. Technos SA | Warner Music vs. Charter Communications | Warner Music vs. STMicroelectronics NV | Warner Music vs. United States Steel |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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