Correlation Between Warner Music and News

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

Diversification Opportunities for Warner Music and News

0.84

Correlation Coefficient

Warner Music  News

Very poor diversification

The 3 months correlation between Warner and News is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and News Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on News 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 News. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of News has no effect on the direction of Warner Music i.e., Warner Music and News go up and down completely randomly.

Pair Corralation between Warner Music and News

Assuming the 90 days horizon Warner Music Group is expected to under-perform the News. In addition to that, Warner Music is 1.75 times more volatile than News Corporation. It trades about -0.02 of its total potential returns per unit of risk. News Corporation is currently generating about 0.08 per unit of volatility. If you would invest  2,940  in News Corporation on September 13, 2024 and sell it today you would earn a total of  60.00  from holding News Corporation or generate 2.04% 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.  News Corp.

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 uncertain basic indicators, Warner Music reported solid returns over the last few months and may actually be approaching a breakup point.

News

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in News Corporation are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, News reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Warner Music and News

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

The idea behind Warner Music Group and News Corporation 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.