Correlation Between Universal Music and Dow Jones
Can any of the company-specific risk be diversified away by investing in both Universal Music and Dow Jones 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 Dow Jones 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 Dow Jones Industrial, you can compare the effects of market volatilities on Universal Music and Dow Jones 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 Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Universal Music and Dow Jones.
Diversification Opportunities for Universal Music and Dow Jones
-0.1 | Correlation Coefficient |
Good diversification
The 3 months correlation between Universal and Dow is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Universal Music Group and Dow Jones Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Jones Industrial 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 Dow Jones. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Jones Industrial has no effect on the direction of Universal Music i.e., Universal Music and Dow Jones go up and down completely randomly.
Pair Corralation between Universal Music and Dow Jones
Assuming the 90 days trading horizon Universal Music Group is expected to under-perform the Dow Jones. In addition to that, Universal Music is 1.5 times more volatile than Dow Jones Industrial. It trades about -0.04 of its total potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.16 per unit of volatility. If you would invest 4,233,015 in Dow Jones Industrial on August 30, 2024 and sell it today you would earn a total of 239,191 from holding Dow Jones Industrial or generate 5.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Universal Music Group vs. Dow Jones Industrial
Performance |
| Timeline |
Universal Music and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
Universal Music Group
Pair trading matchups for Universal Music
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with Universal Music and Dow Jones
The main advantage of trading using opposite Universal Music and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Universal Music position performs unexpectedly, Dow Jones 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 Dow Jones will offset losses from the drop in Dow Jones' long position.| Universal Music vs. Vivendi SA | Universal Music vs. Prosus NV | Universal Music vs. Pershing Square Holdings | Universal Music vs. Adyen NV |
| Dow Jones vs. Skillful Craftsman Education | Dow Jones vs. Acco Brands | Dow Jones vs. Cracker Barrel Old | Dow Jones vs. Coursera |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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