Correlation Between Universal Music and Paramount Global

Can any of the company-specific risk be diversified away by investing in both Universal Music and Paramount Global 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 Paramount Global 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 Paramount Global, you can compare the effects of market volatilities on Universal Music and Paramount Global 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 Paramount Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of Universal Music and Paramount Global.

Diversification Opportunities for Universal Music and Paramount Global

0.02

Correlation Coefficient

Universal Music  Paramount Global

Significant diversification

The 3 months correlation between Universal and Paramount is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Universal Music Group and Paramount Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Paramount Global 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 Paramount Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Paramount Global has no effect on the direction of Universal Music i.e., Universal Music and Paramount Global go up and down completely randomly.

Pair Corralation between Universal Music and Paramount Global

Assuming the 90 days horizon Universal Music Group is expected to generate 0.53 times more return on investment than Paramount Global. However, Universal Music Group is 1.89 times less risky than Paramount Global. It trades about 0.06 of its potential returns per unit of risk. Paramount Global is currently generating about -0.03 per unit of risk. If you would invest  2,502  in Universal Music Group on January 24, 2024 and sell it today you would earn a total of  402.00  from holding Universal Music Group or generate 16.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	92.43%
Values	Daily Returns

Universal Music Group  vs.  Paramount Global

Universal Music Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Universal Music Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Universal Music is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Paramount Global

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Paramount Global has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Preferred Stock's basic indicators remain relatively invariable which may send shares a bit higher in May 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Universal Music and Paramount Global

The main advantage of trading using opposite Universal Music and Paramount Global positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Universal Music position performs unexpectedly, Paramount Global 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 Paramount Global will offset losses from the drop in Paramount Global's long position.

The idea behind Universal Music Group and Paramount Global 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.

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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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..