Correlation Between Warner Music and Warner Bros

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

Diversification Opportunities for Warner Music and Warner Bros

0.15

Correlation Coefficient

Warner Music  Warner Bros

Average diversification

The 3 months correlation between Warner and Warner is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Warner Music Group and Warner Bros Discovery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Warner Bros Discovery 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 Warner Bros. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Warner Bros Discovery has no effect on the direction of Warner Music i.e., Warner Music and Warner Bros go up and down completely randomly.

Pair Corralation between Warner Music and Warner Bros

Considering the 90-day investment horizon Warner Music Group is expected to generate 0.53 times more return on investment than Warner Bros. However, Warner Music Group is 1.87 times less risky than Warner Bros. It trades about 0.03 of its potential returns per unit of risk. Warner Bros Discovery is currently generating about 0.0 per unit of risk. If you would invest  2,567  in Warner Music Group on October 12, 2024 and sell it today you would earn a total of  363.00  from holding Warner Music Group or generate 14.14% return on investment over 90 days.

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

Warner Music Group  vs.  Warner Bros Discovery

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.

Warner Bros Discovery

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Warner Bros Discovery are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental drivers, Warner Bros exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Warner Music and Warner Bros

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

The idea behind Warner Music Group and Warner Bros Discovery 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.