Correlation Between Universal Music and Discover Financial
Can any of the company-specific risk be diversified away by investing in both Universal Music and Discover Financial 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 Discover Financial 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 Discover Financial Services, you can compare the effects of market volatilities on Universal Music and Discover Financial 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 Discover Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Universal Music and Discover Financial.
Diversification Opportunities for Universal Music and Discover Financial
-0.36 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Universal and Discover is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Universal Music Group and Discover Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Discover Financial 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 Discover Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Discover Financial has no effect on the direction of Universal Music i.e., Universal Music and Discover Financial go up and down completely randomly.
Pair Corralation between Universal Music and Discover Financial
Assuming the 90 days trading horizon Universal Music is expected to generate 34.32 times less return on investment than Discover Financial. In addition to that, Universal Music is 1.14 times more volatile than Discover Financial Services. It trades about 0.0 of its total potential returns per unit of risk. Discover Financial Services is currently generating about 0.11 per unit of volatility. If you would invest 10,660 in Discover Financial Services on September 14, 2024 and sell it today you would earn a total of 7,120 from holding Discover Financial Services or generate 66.79% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 96.83% |
| Values | Daily Returns |
Universal Music Group vs. Discover Financial Services
Performance |
| Timeline |
| Universal Music Group |
| Discover Financial |
Universal Music and Discover Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Universal Music and Discover Financial
The main advantage of trading using opposite Universal Music and Discover Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Universal Music position performs unexpectedly, Discover Financial 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 Discover Financial will offset losses from the drop in Discover Financial's long position.| Universal Music vs. Sunny Optical Technology | Universal Music vs. Take Two Interactive Software | Universal Music vs. Endeavour Mining Corp | Universal Music vs. Caledonia Mining |
| Discover Financial vs. Dolly Varden Silver | Discover Financial vs. Ironveld Plc | Discover Financial vs. Baker Steel Resources | Discover Financial vs. Endeavour Mining Corp |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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