Correlation Between Warner Bros and Warner Music

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

Diversification Opportunities for Warner Bros and Warner Music

0.46

Correlation Coefficient

Warner Bros  Warner Music

Very weak diversification

The 3 months correlation between Warner and Warner is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Warner Bros Discovery and Warner Music Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Warner 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 Warner Music. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Warner Music Group has no effect on the direction of Warner Bros i.e., Warner Bros and Warner Music go up and down completely randomly.

Pair Corralation between Warner Bros and Warner Music

Considering the 90-day investment horizon Warner Bros Discovery is expected to generate 2.4 times more return on investment than Warner Music. However, Warner Bros is 2.4 times more volatile than Warner Music Group. It trades about 0.25 of its potential returns per unit of risk. Warner Music Group is currently generating about -0.01 per unit of risk. If you would invest  733.00  in Warner Bros Discovery on September 23, 2024 and sell it today you would earn a total of  336.00  from holding Warner Bros Discovery or generate 45.84% return on investment over 90 days.

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

Warner Bros Discovery  vs.  Warner Music Group

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 unsteady fundamental drivers, Warner Bros exhibited solid returns over the last few months and may actually be approaching a breakup point.

Warner Music Group

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Warner Music Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable primary indicators, Warner Music is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Warner Bros and Warner Music

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

The idea behind Warner Bros Discovery and Warner 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.