Correlation Between Warner Music and Lavoro Limited

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

Diversification Opportunities for Warner Music and Lavoro Limited

0.49

Correlation Coefficient

Warner Music  Lavoro Limited

Very weak diversification

The 3 months correlation between Warner and Lavoro is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and Lavoro Limited Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lavoro Limited Class 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 Lavoro Limited. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lavoro Limited Class has no effect on the direction of Warner Music i.e., Warner Music and Lavoro Limited go up and down completely randomly.

Pair Corralation between Warner Music and Lavoro Limited

Considering the 90-day investment horizon Warner Music is expected to generate 1.51 times less return on investment than Lavoro Limited. But when comparing it to its historical volatility, Warner Music Group is 2.77 times less risky than Lavoro Limited. It trades about 0.13 of its potential returns per unit of risk. Lavoro Limited Class is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  441.00  in Lavoro Limited Class on December 5, 2024 and sell it today you would earn a total of  21.00  from holding Lavoro Limited Class or generate 4.76% return on investment over 90 days.

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

Warner Music Group  vs.  Lavoro Limited Class

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.

Lavoro Limited Class

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lavoro Limited Class has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Lavoro Limited is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Warner Music and Lavoro Limited

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

The idea behind Warner Music Group and Lavoro Limited Class 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.