Correlation Between Liberty Media and Universal Music

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

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

Diversification Opportunities for Liberty Media and Universal Music

-0.68

Correlation Coefficient

Liberty Media  Universal Music

Excellent diversification

The 3 months correlation between Liberty and Universal is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Liberty Media 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 Liberty Media 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 Liberty Media 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 Liberty Media i.e., Liberty Media and Universal Music go up and down completely randomly.

Pair Corralation between Liberty Media and Universal Music

Assuming the 90 days horizon Liberty Media is expected to generate 1.11 times more return on investment than Universal Music. However, Liberty Media is 1.11 times more volatile than Universal Music Group. It trades about 0.16 of its potential returns per unit of risk. Universal Music Group is currently generating about -0.08 per unit of risk. If you would invest  6,974  in Liberty Media on August 31, 2024 and sell it today you would earn a total of  1,135  from holding Liberty Media or generate 16.27% return on investment over 90 days.

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

Liberty Media  vs.  Universal Music Group

Liberty Media

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Liberty Media are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Liberty Media sustained solid returns over the last few months and may actually be approaching a breakup point.

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. In spite of latest weak performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Liberty Media and Universal Music

The main advantage of trading using opposite Liberty Media and Universal Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Liberty Media 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 Liberty Media 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.