Correlation Between Warner Music and NAMCO BANDAI

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

Diversification Opportunities for Warner Music and NAMCO BANDAI

-0.09

Correlation Coefficient

Warner Music  NAMCO BANDAI

Good diversification

The 3 months correlation between Warner and NAMCO is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and NAMCO BANDAI HLDG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NAMCO BANDAI HLDG 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 NAMCO BANDAI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NAMCO BANDAI HLDG has no effect on the direction of Warner Music i.e., Warner Music and NAMCO BANDAI go up and down completely randomly.

Pair Corralation between Warner Music and NAMCO BANDAI

Assuming the 90 days horizon Warner Music Group is expected to under-perform the NAMCO BANDAI. But the stock apears to be less risky and, when comparing its historical volatility, Warner Music Group is 1.05 times less risky than NAMCO BANDAI. The stock trades about -0.02 of its potential returns per unit of risk. The NAMCO BANDAI HLDG is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,947  in NAMCO BANDAI HLDG on October 26, 2024 and sell it today you would earn a total of  247.00  from holding NAMCO BANDAI HLDG or generate 12.69% return on investment over 90 days.

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

Warner Music Group  vs.  NAMCO BANDAI HLDG

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

NAMCO BANDAI HLDG

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NAMCO BANDAI HLDG are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental drivers, NAMCO BANDAI exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Warner Music and NAMCO BANDAI

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

The idea behind Warner Music Group and NAMCO BANDAI HLDG 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.