Correlation Between Nasdaq and Universal Music
Can any of the company-specific risk be diversified away by investing in both Nasdaq and Universal Music 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 Nasdaq and Universal Music into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nasdaq Inc and Universal Music Group, you can compare the effects of market volatilities on Nasdaq and Universal Music 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 Nasdaq with a short position of Universal Music. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq and Universal Music.
Diversification Opportunities for Nasdaq and Universal Music
-0.75 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Nasdaq and Universal is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and Universal Music Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Music Group and Nasdaq 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 Nasdaq Inc are associated (or correlated) with Universal Music. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Music Group has no effect on the direction of Nasdaq i.e., Nasdaq and Universal Music go up and down completely randomly.
Pair Corralation between Nasdaq and Universal Music
Given the investment horizon of 90 days Nasdaq Inc is expected to generate 0.53 times more return on investment than Universal Music. However, Nasdaq Inc is 1.89 times less risky than Universal Music. It trades about 0.36 of its potential returns per unit of risk. Universal Music Group is currently generating about -0.16 per unit of risk. If you would invest 7,534 in Nasdaq Inc on August 28, 2024 and sell it today you would earn a total of 618.00 from holding Nasdaq Inc or generate 8.2% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Nasdaq Inc vs. Universal Music Group
Performance |
| Timeline |
| Nasdaq Inc |
| Universal Music Group |
Nasdaq and Universal Music Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nasdaq and Universal Music
The main advantage of trading using opposite Nasdaq and Universal Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq position performs unexpectedly, Universal Music 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 Universal Music will offset losses from the drop in Universal Music's long position.The idea behind Nasdaq Inc and Universal Music Group 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.| Universal Music vs. Thunderbird Entertainment Group | Universal Music vs. Warner Music Group | Universal Music vs. Live Nation Entertainment | Universal Music vs. Atlanta Braves Holdings, |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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