Correlation Between Warner Bros and Reservoir Media

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

Diversification Opportunities for Warner Bros and Reservoir Media

-0.13

Correlation Coefficient

Warner Bros  Reservoir Media

Good diversification

The 3 months correlation between Warner and Reservoir is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Warner Bros Discovery and Reservoir Media in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reservoir Media 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 Reservoir Media. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reservoir Media has no effect on the direction of Warner Bros i.e., Warner Bros and Reservoir Media go up and down completely randomly.

Pair Corralation between Warner Bros and Reservoir Media

Considering the 90-day investment horizon Warner Bros Discovery is expected to generate 1.47 times more return on investment than Reservoir Media. However, Warner Bros is 1.47 times more volatile than Reservoir Media. It trades about 0.01 of its potential returns per unit of risk. Reservoir Media is currently generating about -0.17 per unit of risk. If you would invest  1,051  in Warner Bros Discovery on December 29, 2024 and sell it today you would lose (14.00) from holding Warner Bros Discovery or give up 1.33% of portfolio value over 90 days.

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

Warner Bros Discovery  vs.  Reservoir Media

Warner Bros Discovery

Risk-Adjusted Performance

Very Weak

Over the last 90 days Warner Bros Discovery has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, Warner Bros is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Reservoir Media

Risk-Adjusted Performance

Very Weak

Over the last 90 days Reservoir Media has generated negative risk-adjusted returns adding no value to investors with long positions. Even with inconsistent performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Warner Bros and Reservoir Media

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

The idea behind Warner Bros Discovery and Reservoir Media 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.