Correlation Between Warner Music and Expedia

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

Diversification Opportunities for Warner Music and Expedia

0.89

Correlation Coefficient

Warner Music  Expedia

Very poor diversification

The 3 months correlation between Warner and Expedia is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and Expedia Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Expedia Group 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 Expedia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Expedia Group has no effect on the direction of Warner Music i.e., Warner Music and Expedia go up and down completely randomly.

Pair Corralation between Warner Music and Expedia

Assuming the 90 days horizon Warner Music Group is expected to under-perform the Expedia. But the stock apears to be less risky and, when comparing its historical volatility, Warner Music Group is 1.32 times less risky than Expedia. The stock trades about -0.02 of its potential returns per unit of risk. The Expedia Group is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  17,898  in Expedia Group on October 9, 2024 and sell it today you would earn a total of  24.00  from holding Expedia Group or generate 0.13% return on investment over 90 days.

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

Warner Music Group  vs.  Expedia Group

Warner Music Group

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Warner Music Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Warner Music may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Expedia Group

Risk-Adjusted Performance

15 of 100

Solid

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

Pair Trading with Warner Music and Expedia

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

The idea behind Warner Music Group and Expedia Group 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.