Correlation Between Warner Music and Spirent Communications
Can any of the company-specific risk be diversified away by investing in both Warner Music and Spirent Communications 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 Spirent Communications 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 Spirent Communications plc, you can compare the effects of market volatilities on Warner Music and Spirent Communications 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 Spirent Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Warner Music and Spirent Communications.
Diversification Opportunities for Warner Music and Spirent Communications
0.41 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Warner and Spirent is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and Spirent Communications plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spirent Communications 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 Spirent Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spirent Communications has no effect on the direction of Warner Music i.e., Warner Music and Spirent Communications go up and down completely randomly.
Pair Corralation between Warner Music and Spirent Communications
Assuming the 90 days horizon Warner Music Group is expected to generate 1.49 times more return on investment than Spirent Communications. However, Warner Music is 1.49 times more volatile than Spirent Communications plc. It trades about 0.2 of its potential returns per unit of risk. Spirent Communications plc is currently generating about 0.1 per unit of risk. If you would invest 2,573 in Warner Music Group on September 15, 2024 and sell it today you would earn a total of 549.00 from holding Warner Music Group or generate 21.34% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Warner Music Group vs. Spirent Communications plc
Performance |
Timeline |
Warner Music Group |
Spirent Communications |
Warner Music and Spirent Communications Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Warner Music and Spirent Communications
The main advantage of trading using opposite Warner Music and Spirent Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Warner Music position performs unexpectedly, Spirent Communications 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 Spirent Communications will offset losses from the drop in Spirent Communications' long position.Warner Music vs. REINET INVESTMENTS SCA | Warner Music vs. HK Electric Investments | Warner Music vs. GUARDANT HEALTH CL | Warner Music vs. REGAL ASIAN INVESTMENTS |
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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 Stocks Directory module to find actively traded stocks across global markets.
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