Correlation Between Warner Music and INDOFOOD AGRI

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

Diversification Opportunities for Warner Music and INDOFOOD AGRI

0.49

Correlation Coefficient

Warner Music  INDOFOOD AGRI

Very weak diversification

The 3 months correlation between Warner and INDOFOOD is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and INDOFOOD AGRI RES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INDOFOOD AGRI RES 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 INDOFOOD AGRI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INDOFOOD AGRI RES has no effect on the direction of Warner Music i.e., Warner Music and INDOFOOD AGRI go up and down completely randomly.

Pair Corralation between Warner Music and INDOFOOD AGRI

Assuming the 90 days horizon Warner Music is expected to generate 2.96 times less return on investment than INDOFOOD AGRI. But when comparing it to its historical volatility, Warner Music Group is 1.11 times less risky than INDOFOOD AGRI. It trades about 0.01 of its potential returns per unit of risk. INDOFOOD AGRI RES is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  19.00  in INDOFOOD AGRI RES on October 11, 2024 and sell it today you would earn a total of  3.00  from holding INDOFOOD AGRI RES or generate 15.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Warner Music Group  vs.  INDOFOOD AGRI RES

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 uncertain basic indicators, Warner Music may actually be approaching a critical reversion point that can send shares even higher in February 2025.

INDOFOOD AGRI RES

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in INDOFOOD AGRI RES are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, INDOFOOD AGRI is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Warner Music and INDOFOOD AGRI

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

The idea behind Warner Music Group and INDOFOOD AGRI RES 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.