Correlation Between Warner Music and T-Mobile

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

Diversification Opportunities for Warner Music and T-Mobile

0.89

Correlation Coefficient

Warner Music  T-Mobile

Very poor diversification

The 3 months correlation between Warner and T-Mobile is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and T Mobile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on T Mobile 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 T-Mobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of T Mobile has no effect on the direction of Warner Music i.e., Warner Music and T-Mobile go up and down completely randomly.

Pair Corralation between Warner Music and T-Mobile

Assuming the 90 days horizon Warner Music is expected to generate 1.7 times less return on investment than T-Mobile. But when comparing it to its historical volatility, Warner Music Group is 1.04 times less risky than T-Mobile. It trades about 0.08 of its potential returns per unit of risk. T Mobile is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  19,020  in T Mobile on October 5, 2024 and sell it today you would earn a total of  2,465  from holding T Mobile or generate 12.96% 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.  T Mobile

Warner Music Group

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days Warner Music Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly uncertain basic indicators, Warner Music may actually be approaching a critical reversion point that can send shares even higher in February 2025.

T Mobile

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days T Mobile has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, T-Mobile reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Warner Music and T-Mobile

The main advantage of trading using opposite Warner Music and T-Mobile positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Warner Music position performs unexpectedly, T-Mobile 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 T-Mobile will offset losses from the drop in T-Mobile's long position.

The idea behind Warner Music Group and T Mobile 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.