Correlation Between Warner Music and Awilco Drilling

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

Diversification Opportunities for Warner Music and Awilco Drilling

-0.54

Correlation Coefficient

Warner Music  Awilco Drilling

Excellent diversification

The 3 months correlation between Warner and Awilco is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and Awilco Drilling PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Awilco Drilling PLC 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 Awilco Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Awilco Drilling PLC has no effect on the direction of Warner Music i.e., Warner Music and Awilco Drilling go up and down completely randomly.

Pair Corralation between Warner Music and Awilco Drilling

Considering the 90-day investment horizon Warner Music Group is expected to generate 4.3 times more return on investment than Awilco Drilling. However, Warner Music is 4.3 times more volatile than Awilco Drilling PLC. It trades about 0.11 of its potential returns per unit of risk. Awilco Drilling PLC is currently generating about -0.12 per unit of risk. If you would invest  2,994  in Warner Music Group on September 15, 2024 and sell it today you would earn a total of  280.00  from holding Warner Music Group or generate 9.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Warner Music Group  vs.  Awilco Drilling PLC

Warner Music Group

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Warner Music Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak primary indicators, Warner Music may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Awilco Drilling PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Awilco Drilling PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Awilco Drilling is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Warner Music and Awilco Drilling

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

The idea behind Warner Music Group and Awilco Drilling PLC 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.