Correlation Between Universal Music and Merck
Can any of the company-specific risk be diversified away by investing in both Universal Music and Merck 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 Merck 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 Merck Company, you can compare the effects of market volatilities on Universal Music and Merck 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 Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Universal Music and Merck.
Diversification Opportunities for Universal Music and Merck
0.09 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Universal and Merck is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Universal Music Group and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company 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 Merck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck Company has no effect on the direction of Universal Music i.e., Universal Music and Merck go up and down completely randomly.
Pair Corralation between Universal Music and Merck
Assuming the 90 days trading horizon Universal Music Group is expected to generate 0.82 times more return on investment than Merck. However, Universal Music Group is 1.23 times less risky than Merck. It trades about 0.33 of its potential returns per unit of risk. Merck Company is currently generating about 0.22 per unit of risk. If you would invest 2,284 in Universal Music Group on September 19, 2024 and sell it today you would earn a total of 191.00 from holding Universal Music Group or generate 8.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Universal Music Group vs. Merck Company
Performance |
| Timeline |
| Universal Music Group |
| Merck Company |
Universal Music and Merck Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Universal Music and Merck
The main advantage of trading using opposite Universal Music and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Universal Music position performs unexpectedly, Merck 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 Merck will offset losses from the drop in Merck's long position.| Universal Music vs. Merck Company | Universal Music vs. Unilever PLC | Universal Music vs. Anheuser Busch InBev SANV | Universal Music vs. The Este Lauder |
| Merck vs. Vienna Insurance Group | Merck vs. Oberbank AG | Merck vs. CNH Industrial NV | Merck vs. Universal Music Group |
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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.
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