Correlation Between Warner Music and Nabors Industries

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

Diversification Opportunities for Warner Music and Nabors Industries

0.46

Correlation Coefficient

Warner Music  Nabors Industries

Very weak diversification

The 3 months correlation between Warner and Nabors is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and Nabors Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nabors Industries 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 Nabors Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nabors Industries has no effect on the direction of Warner Music i.e., Warner Music and Nabors Industries go up and down completely randomly.

Pair Corralation between Warner Music and Nabors Industries

Considering the 90-day investment horizon Warner Music Group is expected to generate 0.49 times more return on investment than Nabors Industries. However, Warner Music Group is 2.05 times less risky than Nabors Industries. It trades about 0.02 of its potential returns per unit of risk. Nabors Industries is currently generating about -0.02 per unit of risk. If you would invest  3,100  in Warner Music Group on September 14, 2024 and sell it today you would earn a total of  152.00  from holding Warner Music Group or generate 4.9% 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.  Nabors Industries

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 conflicting primary indicators, Warner Music may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Nabors Industries

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nabors Industries are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak fundamental drivers, Nabors Industries may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Warner Music and Nabors Industries

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

The idea behind Warner Music Group and Nabors Industries 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.