Correlation Between STMicroelectronics and Universal Music

Can any of the company-specific risk be diversified away by investing in both STMicroelectronics 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 STMicroelectronics and Universal Music into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between STMicroelectronics NV and Universal Music Group, you can compare the effects of market volatilities on STMicroelectronics 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 STMicroelectronics with a short position of Universal Music. Check out your portfolio center. Please also check ongoing floating volatility patterns of STMicroelectronics and Universal Music.

Diversification Opportunities for STMicroelectronics and Universal Music

0.18

Correlation Coefficient

STMicroelectronics  Universal Music

Average diversification

The 3 months correlation between STMicroelectronics and Universal is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV 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 STMicroelectronics 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 STMicroelectronics NV 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 STMicroelectronics i.e., STMicroelectronics and Universal Music go up and down completely randomly.

Pair Corralation between STMicroelectronics and Universal Music

Assuming the 90 days trading horizon STMicroelectronics NV is expected to under-perform the Universal Music. But the stock apears to be less risky and, when comparing its historical volatility, STMicroelectronics NV is 1.2 times less risky than Universal Music. The stock trades about -0.08 of its potential returns per unit of risk. The Universal Music Group is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  2,652  in Universal Music Group on October 9, 2024 and sell it today you would lose (230.00) from holding Universal Music Group or give up 8.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.94%
Values	Daily Returns

STMicroelectronics NV  vs.  Universal Music Group

STMicroelectronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STMicroelectronics NV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, STMicroelectronics is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Universal Music Group

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Music Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Universal Music is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with STMicroelectronics and Universal Music

The main advantage of trading using opposite STMicroelectronics and Universal Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if STMicroelectronics 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 STMicroelectronics NV 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.

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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 Commodity Directory module to find actively traded commodities issued by global exchanges.