Correlation Between Universal Music and Vitec Software
Can any of the company-specific risk be diversified away by investing in both Universal Music and Vitec Software 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 Vitec Software 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 Vitec Software Group, you can compare the effects of market volatilities on Universal Music and Vitec Software 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 Vitec Software. Check out your portfolio center. Please also check ongoing floating volatility patterns of Universal Music and Vitec Software.
Diversification Opportunities for Universal Music and Vitec Software
-0.13 | Correlation Coefficient |
Good diversification
The 3 months correlation between Universal and Vitec is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Universal Music Group and Vitec Software Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vitec Software Group 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 Vitec Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vitec Software Group has no effect on the direction of Universal Music i.e., Universal Music and Vitec Software go up and down completely randomly.
Pair Corralation between Universal Music and Vitec Software
Assuming the 90 days trading horizon Universal Music Group is expected to under-perform the Vitec Software. But the stock apears to be less risky and, when comparing its historical volatility, Universal Music Group is 1.65 times less risky than Vitec Software. The stock trades about -0.2 of its potential returns per unit of risk. The Vitec Software Group is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest 48,820 in Vitec Software Group on August 29, 2024 and sell it today you would lose (2,320) from holding Vitec Software Group or give up 4.75% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Universal Music Group vs. Vitec Software Group
Performance |
| Timeline |
| Universal Music Group |
| Vitec Software Group |
Universal Music and Vitec Software Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Universal Music and Vitec Software
The main advantage of trading using opposite Universal Music and Vitec Software positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Universal Music position performs unexpectedly, Vitec Software 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 Vitec Software will offset losses from the drop in Vitec Software's long position.| Universal Music vs. Lendinvest PLC | Universal Music vs. Neometals | Universal Music vs. Coor Service Management | Universal Music vs. Albion Technology General |
| Vitec Software vs. Lendinvest PLC | Vitec Software vs. Neometals | Vitec Software vs. Coor Service Management | Vitec Software vs. Albion Technology General |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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