Correlation Between Warner Music and Tokyo Electron

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

Diversification Opportunities for Warner Music and Tokyo Electron

-0.2

Correlation Coefficient

Warner Music  Tokyo Electron

Good diversification

The 3 months correlation between Warner and Tokyo is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and Tokyo Electron in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tokyo Electron 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 Tokyo Electron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tokyo Electron has no effect on the direction of Warner Music i.e., Warner Music and Tokyo Electron go up and down completely randomly.

Pair Corralation between Warner Music and Tokyo Electron

Considering the 90-day investment horizon Warner Music Group is expected to generate 0.49 times more return on investment than Tokyo Electron. However, Warner Music Group is 2.06 times less risky than Tokyo Electron. It trades about 0.06 of its potential returns per unit of risk. Tokyo Electron is currently generating about 0.0 per unit of risk. If you would invest  3,092  in Warner Music Group on December 21, 2024 and sell it today you would earn a total of  156.00  from holding Warner Music Group or generate 5.05% 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.  Tokyo Electron

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.

Tokyo Electron

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tokyo Electron has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, Tokyo Electron 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 Tokyo Electron

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

The idea behind Warner Music Group and Tokyo Electron 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.