Correlation Between Universal Music and Solstad Offshore

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

Diversification Opportunities for Universal Music and Solstad Offshore

-0.39

Correlation Coefficient

Universal Music  Solstad Offshore

Very good diversification

The 3 months correlation between Universal and Solstad is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Universal Music Group and Solstad Offshore ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solstad Offshore ASA 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 Solstad Offshore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solstad Offshore ASA has no effect on the direction of Universal Music i.e., Universal Music and Solstad Offshore go up and down completely randomly.

Pair Corralation between Universal Music and Solstad Offshore

Assuming the 90 days trading horizon Universal Music is expected to generate 1.08 times less return on investment than Solstad Offshore. But when comparing it to its historical volatility, Universal Music Group is 1.39 times less risky than Solstad Offshore. It trades about 0.12 of its potential returns per unit of risk. Solstad Offshore ASA is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  3,428  in Solstad Offshore ASA on September 4, 2024 and sell it today you would earn a total of  692.00  from holding Solstad Offshore ASA or generate 20.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.92%
Values	Daily Returns

Universal Music Group  vs.  Solstad Offshore ASA

Universal Music Group

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Music Group are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Universal Music unveiled solid returns over the last few months and may actually be approaching a breakup point.

Solstad Offshore ASA

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Solstad Offshore ASA are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Solstad Offshore unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Universal Music and Solstad Offshore

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

The idea behind Universal Music Group and Solstad Offshore ASA 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.