Correlation Between Warner Music and Stepan

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

Diversification Opportunities for Warner Music and Stepan

0.29

Correlation Coefficient

Warner Music  Stepan

Modest diversification

The 3 months correlation between Warner and Stepan is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and Stepan Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stepan Company 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 Stepan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stepan Company has no effect on the direction of Warner Music i.e., Warner Music and Stepan go up and down completely randomly.

Pair Corralation between Warner Music and Stepan

Considering the 90-day investment horizon Warner Music Group is expected to generate 0.89 times more return on investment than Stepan. However, Warner Music Group is 1.12 times less risky than Stepan. It trades about -0.11 of its potential returns per unit of risk. Stepan Company is currently generating about -0.4 per unit of risk. If you would invest  3,240  in Warner Music Group on September 27, 2024 and sell it today you would lose (100.00) from holding Warner Music Group or give up 3.09% of portfolio value over 90 days.

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

Warner Music Group  vs.  Stepan Company

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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Stepan Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Stepan Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Warner Music and Stepan

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

The idea behind Warner Music Group and Stepan Company 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.