Correlation Between Universal Music and American Electric
Can any of the company-specific risk be diversified away by investing in both Universal Music and American Electric 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 American Electric 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 American Electric Power, you can compare the effects of market volatilities on Universal Music and American Electric 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 American Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Universal Music and American Electric.
Diversification Opportunities for Universal Music and American Electric
-0.03 | Correlation Coefficient |
Good diversification
The 3 months correlation between Universal and American is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Universal Music Group and American Electric Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Electric Power 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 American Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Electric Power has no effect on the direction of Universal Music i.e., Universal Music and American Electric go up and down completely randomly.
Pair Corralation between Universal Music and American Electric
Assuming the 90 days trading horizon Universal Music Group is expected to generate 0.98 times more return on investment than American Electric. However, Universal Music Group is 1.02 times less risky than American Electric. It trades about 0.2 of its potential returns per unit of risk. American Electric Power is currently generating about 0.04 per unit of risk. If you would invest 2,302 in Universal Music Group on September 13, 2024 and sell it today you would earn a total of 113.00 from holding Universal Music Group or generate 4.91% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Universal Music Group vs. American Electric Power
Performance |
| Timeline |
| Universal Music Group |
| American Electric Power |
Universal Music and American Electric Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Universal Music and American Electric
The main advantage of trading using opposite Universal Music and American Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Universal Music position performs unexpectedly, American Electric 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 American Electric will offset losses from the drop in American Electric's long position.| Universal Music vs. Hochschild Mining plc | Universal Music vs. Sparebank 1 SR | Universal Music vs. Prudential Financial | Universal Music vs. McEwen Mining |
| American Electric vs. Samsung Electronics Co | American Electric vs. Samsung Electronics Co | American Electric vs. Hyundai Motor | American Electric vs. Reliance Industries Ltd |
Check out your portfolio center.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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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