Correlation Between Associated British and Universal Music

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

By analyzing existing cross correlation between Associated British Foods and Universal Music Group, you can compare the effects of market volatilities on Associated British and Universal 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 Associated British with a short position of Universal Music. Check out your portfolio center. Please also check ongoing floating volatility patterns of Associated British and Universal Music.

Diversification Opportunities for Associated British and Universal Music

0.07

Correlation Coefficient

Associated British  Universal Music

Significant diversification

The 3 months correlation between Associated and Universal is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Associated British Foods and Universal Music Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Music Group and Associated British 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 Associated British Foods are associated (or correlated) with Universal Music. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Music Group has no effect on the direction of Associated British i.e., Associated British and Universal Music go up and down completely randomly.

Pair Corralation between Associated British and Universal Music

Assuming the 90 days trading horizon Associated British Foods is expected to generate 0.64 times more return on investment than Universal Music. However, Associated British Foods is 1.56 times less risky than Universal Music. It trades about 0.05 of its potential returns per unit of risk. Universal Music Group is currently generating about 0.02 per unit of risk. If you would invest  152,452  in Associated British Foods on September 20, 2024 and sell it today you would earn a total of  56,548  from holding Associated British Foods or generate 37.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.01%
Values	Daily Returns

Associated British Foods  vs.  Universal Music Group

Associated British Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Associated British Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Associated British is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Universal Music Group

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Music Group are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Universal Music may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Associated British and Universal Music

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

The idea behind Associated British Foods and Universal 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.

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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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.