Correlation Between Ecofin Global and Universal Music

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

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

Diversification Opportunities for Ecofin Global and Universal Music

-0.33

Correlation Coefficient

Ecofin Global  Universal Music

Very good diversification

The 3 months correlation between Ecofin and Universal is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Ecofin Global Utilities 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 Ecofin Global 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 Ecofin Global Utilities 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 Ecofin Global i.e., Ecofin Global and Universal Music go up and down completely randomly.

Pair Corralation between Ecofin Global and Universal Music

Assuming the 90 days trading horizon Ecofin Global Utilities is expected to under-perform the Universal Music. In addition to that, Ecofin Global is 1.21 times more volatile than Universal Music Group. It trades about -0.2 of its total potential returns per unit of risk. Universal Music Group is currently generating about 0.34 per unit of volatility. If you would invest  2,254  in Universal Music Group on September 25, 2024 and sell it today you would earn a total of  187.00  from holding Universal Music Group or generate 8.3% return on investment over 90 days.

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

Ecofin Global Utilities  vs.  Universal Music Group

Ecofin Global Utilities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ecofin Global Utilities has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Ecofin Global 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

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Music Group are ranked lower than 7 (%) 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 Ecofin Global and Universal Music

The main advantage of trading using opposite Ecofin Global and Universal Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ecofin Global 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 Ecofin Global Utilities 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.