Correlation Between Universal Music and Dominos Pizza

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

Diversification Opportunities for Universal Music and Dominos Pizza

-0.65

Correlation Coefficient

Universal Music  Dominos Pizza

Excellent diversification

The 3 months correlation between Universal and Dominos is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Universal Music Group and Dominos Pizza in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dominos Pizza 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 Dominos Pizza. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dominos Pizza has no effect on the direction of Universal Music i.e., Universal Music and Dominos Pizza go up and down completely randomly.

Pair Corralation between Universal Music and Dominos Pizza

Assuming the 90 days horizon Universal Music Group is expected to under-perform the Dominos Pizza. In addition to that, Universal Music is 1.3 times more volatile than Dominos Pizza. It trades about -0.02 of its total potential returns per unit of risk. Dominos Pizza is currently generating about 0.13 per unit of volatility. If you would invest  40,433  in Dominos Pizza on September 12, 2024 and sell it today you would earn a total of  4,983  from holding Dominos Pizza or generate 12.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Universal Music Group  vs.  Dominos Pizza

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. Despite nearly stable basic indicators, Universal Music is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Dominos Pizza

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dominos Pizza are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Dominos Pizza may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Universal Music and Dominos Pizza

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

The idea behind Universal Music Group and Dominos Pizza 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.