Correlation Between UNIVERSAL MUSIC and Vestas Wind

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

Diversification Opportunities for UNIVERSAL MUSIC and Vestas Wind

0.25

Correlation Coefficient

UNIVERSAL MUSIC  Vestas Wind

Modest diversification

The 3 months correlation between UNIVERSAL and Vestas is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding UNIVERSAL MUSIC GROUP and Vestas Wind Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vestas Wind Systems 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 Vestas Wind. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vestas Wind Systems has no effect on the direction of UNIVERSAL MUSIC i.e., UNIVERSAL MUSIC and Vestas Wind go up and down completely randomly.

Pair Corralation between UNIVERSAL MUSIC and Vestas Wind

Assuming the 90 days horizon UNIVERSAL MUSIC GROUP is expected to generate 0.44 times more return on investment than Vestas Wind. However, UNIVERSAL MUSIC GROUP is 2.29 times less risky than Vestas Wind. It trades about 0.03 of its potential returns per unit of risk. Vestas Wind Systems is currently generating about -0.2 per unit of risk. If you would invest  2,271  in UNIVERSAL MUSIC GROUP on September 5, 2024 and sell it today you would earn a total of  54.00  from holding UNIVERSAL MUSIC GROUP or generate 2.38% return on investment over 90 days.

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

UNIVERSAL MUSIC GROUP  vs.  Vestas Wind Systems

UNIVERSAL MUSIC GROUP

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in UNIVERSAL MUSIC GROUP are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, UNIVERSAL MUSIC is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Vestas Wind Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vestas Wind Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's fundamental drivers remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with UNIVERSAL MUSIC and Vestas Wind

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

The idea behind UNIVERSAL MUSIC GROUP and Vestas Wind Systems 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.