Correlation Between Warner Music and HEINEKEN

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

Diversification Opportunities for Warner Music and HEINEKEN

0.68

Correlation Coefficient

Warner Music  HEINEKEN

Poor diversification

The 3 months correlation between Warner and HEINEKEN is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and HEINEKEN SP ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HEINEKEN SP ADR 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 HEINEKEN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HEINEKEN SP ADR has no effect on the direction of Warner Music i.e., Warner Music and HEINEKEN go up and down completely randomly.

Pair Corralation between Warner Music and HEINEKEN

Assuming the 90 days horizon Warner Music is expected to generate 9.37 times less return on investment than HEINEKEN. In addition to that, Warner Music is 1.08 times more volatile than HEINEKEN SP ADR. It trades about 0.01 of its total potential returns per unit of risk. HEINEKEN SP ADR is currently generating about 0.14 per unit of volatility. If you would invest  3,360  in HEINEKEN SP ADR on December 21, 2024 and sell it today you would earn a total of  500.00  from holding HEINEKEN SP ADR or generate 14.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.33%
Values	Daily Returns

Warner Music Group  vs.  HEINEKEN SP ADR

Warner Music Group

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Warner Music Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Warner Music is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

HEINEKEN SP ADR

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HEINEKEN SP ADR are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward-looking signals, HEINEKEN reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Warner Music and HEINEKEN

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

The idea behind Warner Music Group and HEINEKEN SP ADR 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.