Correlation Between Warner Bros and Warner Music

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

Diversification Opportunities for Warner Bros and Warner Music

0.29

Correlation Coefficient

Warner Bros  Warner Music

Modest diversification

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

Pair Corralation between Warner Bros and Warner Music

Considering the 90-day investment horizon Warner Bros Discovery is expected to generate 1.12 times more return on investment than Warner Music. However, Warner Bros is 1.12 times more volatile than Warner Music Group. It trades about -0.04 of its potential returns per unit of risk. Warner Music Group is currently generating about -0.06 per unit of risk. If you would invest  886.00  in Warner Bros Discovery on March 12, 2024 and sell it today you would lose (74.00) from holding Warner Bros Discovery or give up 8.35% of portfolio value over 90 days.

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

Warner Bros Discovery  vs.  Warner Music Group

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.

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 latest conflicting performance, the Stock's primary indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Warner Bros and Warner Music

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

The idea behind Warner Bros Discovery and Warner Music Group 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.