Correlation Between Warner Music and CVW CleanTech

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

Diversification Opportunities for Warner Music and CVW CleanTech

-0.43

Correlation Coefficient

Warner Music  CVW CleanTech

Very good diversification

The 3 months correlation between Warner and CVW is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and CVW CleanTech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVW CleanTech 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 CVW CleanTech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVW CleanTech has no effect on the direction of Warner Music i.e., Warner Music and CVW CleanTech go up and down completely randomly.

Pair Corralation between Warner Music and CVW CleanTech

Considering the 90-day investment horizon Warner Music Group is expected to under-perform the CVW CleanTech. But the stock apears to be less risky and, when comparing its historical volatility, Warner Music Group is 4.87 times less risky than CVW CleanTech. The stock trades about 0.0 of its potential returns per unit of risk. The CVW CleanTech is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  40.00  in CVW CleanTech on September 21, 2024 and sell it today you would earn a total of  22.00  from holding CVW CleanTech or generate 55.0% return on investment over 90 days.

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

Warner Music Group  vs.  CVW CleanTech

Warner Music Group

Risk-Adjusted Performance

0 of 100

Very Weak

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

CVW CleanTech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVW CleanTech has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Warner Music and CVW CleanTech

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

The idea behind Warner Music Group and CVW CleanTech 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.