Correlation Between Universal Music and Pershing Square

Can any of the company-specific risk be diversified away by investing in both Universal Music and Pershing Square 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 Pershing Square 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 Pershing Square Holdings, you can compare the effects of market volatilities on Universal Music and Pershing Square 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 Pershing Square. Check out your portfolio center. Please also check ongoing floating volatility patterns of Universal Music and Pershing Square.

Diversification Opportunities for Universal Music and Pershing Square

0.12

Correlation Coefficient

Universal Music  Pershing Square

Average diversification

The 3 months correlation between Universal and Pershing is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Universal Music Group and Pershing Square Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pershing Square Holdings 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 Pershing Square. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pershing Square Holdings has no effect on the direction of Universal Music i.e., Universal Music and Pershing Square go up and down completely randomly.

Pair Corralation between Universal Music and Pershing Square

Assuming the 90 days trading horizon Universal Music Group is expected to generate 0.95 times more return on investment than Pershing Square. However, Universal Music Group is 1.05 times less risky than Pershing Square. It trades about -0.04 of its potential returns per unit of risk. Pershing Square Holdings is currently generating about -0.06 per unit of risk. If you would invest  2,339  in Universal Music Group on August 30, 2024 and sell it today you would lose (75.00) from holding Universal Music Group or give up 3.21% of portfolio value over 90 days.

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

Universal Music Group  vs.  Pershing Square Holdings

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 comparatively stable technical and fundamental indicators, Universal Music is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pershing Square Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pershing Square Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical indicators, Pershing Square is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Universal Music and Pershing Square

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

The idea behind Universal Music Group and Pershing Square Holdings 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.