Correlation Between UNIVERSAL MUSIC and Netflix

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

By analyzing existing cross correlation between UNIVERSAL MUSIC GROUP and Netflix, you can compare the effects of market volatilities on UNIVERSAL MUSIC and Netflix 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 UNIVERSAL MUSIC with a short position of Netflix. Check out your portfolio center. Please also check ongoing floating volatility patterns of UNIVERSAL MUSIC and Netflix.

Diversification Opportunities for UNIVERSAL MUSIC and Netflix

-0.37

Correlation Coefficient

UNIVERSAL MUSIC  Netflix

Very good diversification

The 3 months correlation between UNIVERSAL and Netflix is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding UNIVERSAL MUSIC GROUP and Netflix in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Netflix and UNIVERSAL 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 UNIVERSAL MUSIC GROUP are associated (or correlated) with Netflix. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Netflix has no effect on the direction of UNIVERSAL MUSIC i.e., UNIVERSAL MUSIC and Netflix go up and down completely randomly.

Pair Corralation between UNIVERSAL MUSIC and Netflix

Assuming the 90 days horizon UNIVERSAL MUSIC is expected to generate 7.86 times less return on investment than Netflix. But when comparing it to its historical volatility, UNIVERSAL MUSIC GROUP is 1.23 times less risky than Netflix. It trades about 0.02 of its potential returns per unit of risk. Netflix is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  27,725  in Netflix on September 13, 2024 and sell it today you would earn a total of  59,075  from holding Netflix or generate 213.07% return on investment over 90 days.

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

UNIVERSAL MUSIC GROUP  vs.  Netflix

UNIVERSAL MUSIC GROUP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days UNIVERSAL MUSIC GROUP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, UNIVERSAL MUSIC is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Netflix

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Netflix are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Netflix reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with UNIVERSAL MUSIC and Netflix

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

The idea behind UNIVERSAL MUSIC GROUP and Netflix 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.