Correlation Between Warner Bros and Direct Digital

Can any of the company-specific risk be diversified away by investing in both Warner Bros and Direct Digital 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 Bros and Direct Digital into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Warner Bros Discovery and Direct Digital Holdings, you can compare the effects of market volatilities on Warner Bros and Direct Digital 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 Bros with a short position of Direct Digital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Warner Bros and Direct Digital.

Diversification Opportunities for Warner Bros and Direct Digital

-0.65

Correlation Coefficient

Warner Bros  Direct Digital

Excellent diversification

The 3 months correlation between Warner and Direct is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Warner Bros Discovery and Direct Digital Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direct Digital Holdings and Warner Bros 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 Bros Discovery are associated (or correlated) with Direct Digital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direct Digital Holdings has no effect on the direction of Warner Bros i.e., Warner Bros and Direct Digital go up and down completely randomly.

Pair Corralation between Warner Bros and Direct Digital

Considering the 90-day investment horizon Warner Bros Discovery is expected to under-perform the Direct Digital. But the stock apears to be less risky and, when comparing its historical volatility, Warner Bros Discovery is 12.93 times less risky than Direct Digital. The stock trades about 0.0 of its potential returns per unit of risk. The Direct Digital Holdings is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  407.00  in Direct Digital Holdings on October 13, 2024 and sell it today you would lose (243.00) from holding Direct Digital Holdings or give up 59.71% of portfolio value over 90 days.

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

Warner Bros Discovery  vs.  Direct Digital Holdings

Warner Bros Discovery

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Warner Bros Discovery are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental drivers, Warner Bros exhibited solid returns over the last few months and may actually be approaching a breakup point.

Direct Digital Holdings

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Direct Digital Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental indicators, Direct Digital unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Warner Bros and Direct Digital

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

The idea behind Warner Bros Discovery and Direct Digital Holdings 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.

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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.