Correlation Between Warner Music and Guangdong Investment

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

Diversification Opportunities for Warner Music and Guangdong Investment

-0.16

Correlation Coefficient

Warner Music  Guangdong Investment

Good diversification

The 3 months correlation between Warner and Guangdong is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and Guangdong Investment Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Investment 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 Guangdong Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Investment has no effect on the direction of Warner Music i.e., Warner Music and Guangdong Investment go up and down completely randomly.

Pair Corralation between Warner Music and Guangdong Investment

Considering the 90-day investment horizon Warner Music Group is expected to generate 0.92 times more return on investment than Guangdong Investment. However, Warner Music Group is 1.09 times less risky than Guangdong Investment. It trades about 0.05 of its potential returns per unit of risk. Guangdong Investment Limited is currently generating about 0.01 per unit of risk. If you would invest  3,100  in Warner Music Group on December 20, 2024 and sell it today you would earn a total of  148.00  from holding Warner Music Group or generate 4.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.67%
Values	Daily Returns

Warner Music Group  vs.  Guangdong Investment Limited

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.

Guangdong Investment

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Warner Music and Guangdong Investment

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

The idea behind Warner Music Group and Guangdong Investment Limited 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.