Correlation Between Warner Bros and Alliance Entertainment

Can any of the company-specific risk be diversified away by investing in both Warner Bros and Alliance Entertainment 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 Bros and Alliance Entertainment into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Warner Bros Discovery and Alliance Entertainment Holding, you can compare the effects of market volatilities on Warner Bros and Alliance Entertainment 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 Bros with a short position of Alliance Entertainment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Warner Bros and Alliance Entertainment.

Diversification Opportunities for Warner Bros and Alliance Entertainment

-0.64

Correlation Coefficient

Warner Bros  Alliance Entertainment

Excellent diversification

The 3 months correlation between Warner and Alliance is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Warner Bros Discovery and Alliance Entertainment Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alliance Entertainment and Warner Bros 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 Bros Discovery are associated (or correlated) with Alliance Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alliance Entertainment has no effect on the direction of Warner Bros i.e., Warner Bros and Alliance Entertainment go up and down completely randomly.

Pair Corralation between Warner Bros and Alliance Entertainment

Considering the 90-day investment horizon Warner Bros Discovery is expected to under-perform the Alliance Entertainment. But the stock apears to be less risky and, when comparing its historical volatility, Warner Bros Discovery is 12.94 times less risky than Alliance Entertainment. The stock trades about -0.06 of its potential returns per unit of risk. The Alliance Entertainment Holding is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  2.78  in Alliance Entertainment Holding on February 28, 2024 and sell it today you would earn a total of  2.22  from holding Alliance Entertainment Holding or generate 79.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	54.69%
Values	Daily Returns

Warner Bros Discovery  vs.  Alliance Entertainment Holding

Warner Bros Discovery

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Warner Bros Discovery has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental drivers remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Alliance Entertainment

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alliance Entertainment Holding are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Alliance Entertainment showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Warner Bros and Alliance Entertainment

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

The idea behind Warner Bros Discovery and Alliance Entertainment Holding 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.