Correlation Between Warner Music and SPORT LISBOA

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

Diversification Opportunities for Warner Music and SPORT LISBOA

-0.54

Correlation Coefficient

Warner Music  SPORT LISBOA

Excellent diversification

The 3 months correlation between Warner and SPORT is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and SPORT LISBOA E in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPORT LISBOA E 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 SPORT LISBOA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPORT LISBOA E has no effect on the direction of Warner Music i.e., Warner Music and SPORT LISBOA go up and down completely randomly.

Pair Corralation between Warner Music and SPORT LISBOA

Assuming the 90 days horizon Warner Music Group is expected to generate 0.75 times more return on investment than SPORT LISBOA. However, Warner Music Group is 1.33 times less risky than SPORT LISBOA. It trades about 0.18 of its potential returns per unit of risk. SPORT LISBOA E is currently generating about 0.0 per unit of risk. If you would invest  2,553  in Warner Music Group on August 30, 2024 and sell it today you would earn a total of  482.00  from holding Warner Music Group or generate 18.88% return on investment over 90 days.

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

Warner Music Group  vs.  SPORT LISBOA E

Warner Music Group

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Warner Music Group are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Warner Music reported solid returns over the last few months and may actually be approaching a breakup point.

SPORT LISBOA E

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPORT LISBOA E has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, SPORT LISBOA is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Warner Music and SPORT LISBOA

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

The idea behind Warner Music Group and SPORT LISBOA E 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.

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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.