Correlation Between Warner Music and Gaia

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

Diversification Opportunities for Warner Music and Gaia

-0.15

Correlation Coefficient

Warner Music  Gaia

Good diversification

The 3 months correlation between Warner and Gaia is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and Gaia Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gaia Inc 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 Gaia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gaia Inc has no effect on the direction of Warner Music i.e., Warner Music and Gaia go up and down completely randomly.

Pair Corralation between Warner Music and Gaia

Considering the 90-day investment horizon Warner Music Group is expected to generate 0.46 times more return on investment than Gaia. However, Warner Music Group is 2.16 times less risky than Gaia. It trades about 0.05 of its potential returns per unit of risk. Gaia Inc is currently generating about -0.03 per unit of risk. If you would invest  3,080  in Warner Music Group on December 28, 2024 and sell it today you would earn a total of  146.00  from holding Warner Music Group or generate 4.74% return on investment over 90 days.

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

Warner Music Group  vs.  Gaia Inc

Warner Music Group

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Warner Music Group are ranked lower than 4 (%) 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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Gaia Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Gaia Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Warner Music and Gaia

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

The idea behind Warner Music Group and Gaia Inc 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.