Correlation Between Warner Music and Sumitomo Rubber

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

Diversification Opportunities for Warner Music and Sumitomo Rubber

0.29

Correlation Coefficient

Warner Music  Sumitomo Rubber

Modest diversification

The 3 months correlation between Warner and Sumitomo is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and Sumitomo Rubber Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Rubber Indu 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 Sumitomo Rubber. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumitomo Rubber Indu has no effect on the direction of Warner Music i.e., Warner Music and Sumitomo Rubber go up and down completely randomly.

Pair Corralation between Warner Music and Sumitomo Rubber

Assuming the 90 days horizon Warner Music Group is expected to under-perform the Sumitomo Rubber. In addition to that, Warner Music is 1.43 times more volatile than Sumitomo Rubber Industries. It trades about -0.12 of its total potential returns per unit of risk. Sumitomo Rubber Industries is currently generating about 0.1 per unit of volatility. If you would invest  1,060  in Sumitomo Rubber Industries on October 26, 2024 and sell it today you would earn a total of  20.00  from holding Sumitomo Rubber Industries or generate 1.89% return on investment over 90 days.

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

Warner Music Group  vs.  Sumitomo Rubber Industries

Warner Music Group

Risk-Adjusted Performance

0 of 100

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 nearly stable basic indicators, Warner Music is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Sumitomo Rubber Indu

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Rubber Industries are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Sumitomo Rubber reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Warner Music and Sumitomo Rubber

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

The idea behind Warner Music Group and Sumitomo Rubber Industries 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.