Correlation Between Warner Bros and Universal Music

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

Diversification Opportunities for Warner Bros and Universal Music

-0.38

Correlation Coefficient

Warner Bros  Universal Music

Very good diversification

The 3 months correlation between Warner and Universal is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Warner Bros Discovery and Universal Music Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Music Group 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 Universal Music. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Music Group has no effect on the direction of Warner Bros i.e., Warner Bros and Universal Music go up and down completely randomly.

Pair Corralation between Warner Bros and Universal Music

Considering the 90-day investment horizon Warner Bros is expected to generate 2.08 times less return on investment than Universal Music. In addition to that, Warner Bros is 3.28 times more volatile than Universal Music Group. It trades about 0.01 of its total potential returns per unit of risk. Universal Music Group is currently generating about 0.09 per unit of volatility. If you would invest  1,230  in Universal Music Group on October 10, 2024 and sell it today you would earn a total of  27.00  from holding Universal Music Group or generate 2.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Warner Bros Discovery  vs.  Universal Music Group

Warner Bros Discovery

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Warner Bros Discovery are ranked lower than 13 (%) 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.

Universal Music Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Universal Music Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Universal Music is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Warner Bros and Universal Music

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

The idea behind Warner Bros Discovery and Universal Music Group 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.