Correlation Between Boston Beer and UNIVERSAL MUSIC

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

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

Diversification Opportunities for Boston Beer and UNIVERSAL MUSIC

0.0

Correlation Coefficient

Boston Beer  UNIVERSAL MUSIC

Pay attention - limited upside

The 3 months correlation between Boston and UNIVERSAL is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding The Boston Beer 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 Boston Beer 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 The Boston Beer 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 Boston Beer i.e., Boston Beer and UNIVERSAL MUSIC go up and down completely randomly.

Pair Corralation between Boston Beer and UNIVERSAL MUSIC

Assuming the 90 days trading horizon The Boston Beer is expected to generate 1.14 times more return on investment than UNIVERSAL MUSIC. However, Boston Beer is 1.14 times more volatile than UNIVERSAL MUSIC GROUP. It trades about 0.2 of its potential returns per unit of risk. UNIVERSAL MUSIC GROUP is currently generating about 0.11 per unit of risk. If you would invest  24,520  in The Boston Beer on September 22, 2024 and sell it today you would earn a total of  5,140  from holding The Boston Beer or generate 20.96% return on investment over 90 days.

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

The Boston Beer  vs.  UNIVERSAL MUSIC GROUP

Boston Beer

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Boston Beer are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical and fundamental indicators, Boston Beer reported solid returns over the last few months and may actually be approaching a breakup point.

UNIVERSAL MUSIC GROUP

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in UNIVERSAL MUSIC GROUP are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, UNIVERSAL MUSIC may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Boston Beer and UNIVERSAL MUSIC

The main advantage of trading using opposite Boston Beer and UNIVERSAL MUSIC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Boston Beer 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 The Boston Beer 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.