Correlation Between Warner Music and Vertex Pharmaceuticals

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

Diversification Opportunities for Warner Music and Vertex Pharmaceuticals

0.69

Correlation Coefficient

Warner Music  Vertex Pharmaceuticals

Poor diversification

The 3 months correlation between Warner and Vertex is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and Vertex Pharmaceuticals Incorpo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vertex Pharmaceuticals 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 Vertex Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vertex Pharmaceuticals has no effect on the direction of Warner Music i.e., Warner Music and Vertex Pharmaceuticals go up and down completely randomly.

Pair Corralation between Warner Music and Vertex Pharmaceuticals

Assuming the 90 days trading horizon Warner Music Group is expected to generate 0.83 times more return on investment than Vertex Pharmaceuticals. However, Warner Music Group is 1.2 times less risky than Vertex Pharmaceuticals. It trades about 0.19 of its potential returns per unit of risk. Vertex Pharmaceuticals Incorporated is currently generating about 0.04 per unit of risk. If you would invest  4,141  in Warner Music Group on September 14, 2024 and sell it today you would earn a total of  779.00  from holding Warner Music Group or generate 18.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Warner Music Group  vs.  Vertex Pharmaceuticals Incorpo

Warner Music Group

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Warner Music Group are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak primary indicators, Warner Music sustained solid returns over the last few months and may actually be approaching a breakup point.

Vertex Pharmaceuticals

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vertex Pharmaceuticals Incorporated are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Vertex Pharmaceuticals 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 Vertex Pharmaceuticals

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

The idea behind Warner Music Group and Vertex Pharmaceuticals Incorporated 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.