Correlation Between Warner Music and NiSource

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

Diversification Opportunities for Warner Music and NiSource

0.86

Correlation Coefficient

Warner Music  NiSource

Very poor diversification

The 3 months correlation between Warner and NiSource is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and NiSource in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NiSource 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 NiSource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NiSource has no effect on the direction of Warner Music i.e., Warner Music and NiSource go up and down completely randomly.

Pair Corralation between Warner Music and NiSource

Assuming the 90 days horizon Warner Music Group is expected to under-perform the NiSource. In addition to that, Warner Music is 1.11 times more volatile than NiSource. It trades about -0.02 of its total potential returns per unit of risk. NiSource is currently generating about 0.12 per unit of volatility. If you would invest  3,460  in NiSource on October 11, 2024 and sell it today you would earn a total of  80.00  from holding NiSource or generate 2.31% 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.  NiSource

Warner Music Group

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Warner Music Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Warner Music may actually be approaching a critical reversion point that can send shares even higher in February 2025.

NiSource

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in NiSource are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, NiSource reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Warner Music and NiSource

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

The idea behind Warner Music Group and NiSource 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..