Correlation Between Universal Music and Merck

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

Diversification Opportunities for Universal Music and Merck

0.17

Correlation Coefficient

Universal Music  Merck

Average diversification

The 3 months correlation between Universal and Merck is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Universal Music Group and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company 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 Merck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck Company has no effect on the direction of Universal Music i.e., Universal Music and Merck go up and down completely randomly.

Pair Corralation between Universal Music and Merck

Assuming the 90 days trading horizon Universal Music Group is expected to generate 1.09 times more return on investment than Merck. However, Universal Music is 1.09 times more volatile than Merck Company. It trades about 0.06 of its potential returns per unit of risk. Merck Company is currently generating about -0.12 per unit of risk. If you would invest  2,339  in Universal Music Group on September 15, 2024 and sell it today you would earn a total of  115.00  from holding Universal Music Group or generate 4.92% return on investment over 90 days.

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

Universal Music Group  vs.  Merck Company

Universal Music Group

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Music Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical and fundamental indicators, Universal Music is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Merck Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merck Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's forward-looking signals remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Universal Music and Merck

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

The idea behind Universal Music Group and Merck Company 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 Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..