Correlation Between Universal Music and Alfa Financial

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

Diversification Opportunities for Universal Music and Alfa Financial

-0.32

Correlation Coefficient

Universal Music  Alfa Financial

Very good diversification

The 3 months correlation between Universal and Alfa is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Universal Music Group and Alfa Financial Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alfa Financial Software 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 Alfa Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alfa Financial Software has no effect on the direction of Universal Music i.e., Universal Music and Alfa Financial go up and down completely randomly.

Pair Corralation between Universal Music and Alfa Financial

Assuming the 90 days trading horizon Universal Music is expected to generate 2.32 times less return on investment than Alfa Financial. But when comparing it to its historical volatility, Universal Music Group is 1.17 times less risky than Alfa Financial. It trades about 0.02 of its potential returns per unit of risk. Alfa Financial Software is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  15,824  in Alfa Financial Software on October 11, 2024 and sell it today you would earn a total of  5,076  from holding Alfa Financial Software or generate 32.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.2%
Values	Daily Returns

Universal Music Group  vs.  Alfa Financial Software

Universal Music Group

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Music Group are ranked lower than 3 (%) 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.

Alfa Financial Software

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Alfa Financial Software are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Alfa Financial is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Universal Music and Alfa Financial

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

The idea behind Universal Music Group and Alfa Financial Software 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.