Correlation Between Warner Music and Take Two

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

Diversification Opportunities for Warner Music and Take Two

0.75

Correlation Coefficient

Warner Music  Take Two

Poor diversification

The 3 months correlation between Warner and Take is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and Take Two Interactive Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Take Two Interactive 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 Take Two. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Take Two Interactive has no effect on the direction of Warner Music i.e., Warner Music and Take Two go up and down completely randomly.

Pair Corralation between Warner Music and Take Two

Assuming the 90 days trading horizon Warner Music is expected to generate 3.33 times less return on investment than Take Two. But when comparing it to its historical volatility, Warner Music Group is 1.2 times less risky than Take Two. It trades about 0.18 of its potential returns per unit of risk. Take Two Interactive Software is currently generating about 0.51 of returns per unit of risk over similar time horizon. If you would invest  23,625  in Take Two Interactive Software on September 4, 2024 and sell it today you would earn a total of  4,770  from holding Take Two Interactive Software or generate 20.19% return on investment over 90 days.

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

Warner Music Group  vs.  Take Two Interactive Software

Warner Music Group

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Warner Music Group are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain primary indicators, Warner Music sustained solid returns over the last few months and may actually be approaching a breakup point.

Take Two Interactive

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Take Two Interactive Software are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Take Two sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Warner Music and Take Two

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

The idea behind Warner Music Group and Take Two Interactive Software 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.