Correlation Between Warner Music and General Dynamics

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

Diversification Opportunities for Warner Music and General Dynamics

-0.08

Correlation Coefficient

Warner Music  General Dynamics

Good diversification

The 3 months correlation between Warner and General is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and General Dynamics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Dynamics 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 General Dynamics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Dynamics has no effect on the direction of Warner Music i.e., Warner Music and General Dynamics go up and down completely randomly.

Pair Corralation between Warner Music and General Dynamics

Assuming the 90 days horizon Warner Music Group is expected to under-perform the General Dynamics. In addition to that, Warner Music is 1.31 times more volatile than General Dynamics. It trades about -0.11 of its total potential returns per unit of risk. General Dynamics is currently generating about 0.1 per unit of volatility. If you would invest  25,345  in General Dynamics on October 25, 2024 and sell it today you would earn a total of  490.00  from holding General Dynamics or generate 1.93% return on investment over 90 days.

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

Warner Music Group  vs.  General Dynamics

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 latest stock price disturbance, may contribute to mid-run losses for the stockholders.

General Dynamics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days General Dynamics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Warner Music and General Dynamics

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

The idea behind Warner Music Group and General Dynamics 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.