Correlation Between Warner Music and SMA SOLAR
Can any of the company-specific risk be diversified away by investing in both Warner Music and SMA SOLAR 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 SMA SOLAR 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 SMA SOLAR T, you can compare the effects of market volatilities on Warner Music and SMA SOLAR 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 SMA SOLAR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Warner Music and SMA SOLAR.
Diversification Opportunities for Warner Music and SMA SOLAR
0.04 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Warner and SMA is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and SMA SOLAR T in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SMA SOLAR T 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 SMA SOLAR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SMA SOLAR T has no effect on the direction of Warner Music i.e., Warner Music and SMA SOLAR go up and down completely randomly.
Pair Corralation between Warner Music and SMA SOLAR
Assuming the 90 days horizon Warner Music is expected to generate 4.02 times less return on investment than SMA SOLAR. But when comparing it to its historical volatility, Warner Music Group is 3.88 times less risky than SMA SOLAR. It trades about 0.06 of its potential returns per unit of risk. SMA SOLAR T is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 121.00 in SMA SOLAR T on December 2, 2024 and sell it today you would earn a total of 15.00 from holding SMA SOLAR T or generate 12.4% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Insignificant |
Accuracy | 100.0% |
Values | Daily Returns |
Warner Music Group vs. SMA SOLAR T
Performance |
Timeline |
Warner Music Group |
SMA SOLAR T |
Warner Music and SMA SOLAR Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Warner Music and SMA SOLAR
The main advantage of trading using opposite Warner Music and SMA SOLAR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Warner Music position performs unexpectedly, SMA SOLAR 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 SMA SOLAR will offset losses from the drop in SMA SOLAR's long position.Warner Music vs. LG Electronics | Warner Music vs. Electronic Arts | Warner Music vs. Methode Electronics | Warner Music vs. STMicroelectronics NV |
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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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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