Correlation Between UNIVERSAL MUSIC and ScanSource

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

Diversification Opportunities for UNIVERSAL MUSIC and ScanSource

0.07

Correlation Coefficient

UNIVERSAL MUSIC  ScanSource

Significant diversification

The 3 months correlation between UNIVERSAL and ScanSource is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding UNIVERSAL MUSIC GROUP and ScanSource in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ScanSource 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 ScanSource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ScanSource has no effect on the direction of UNIVERSAL MUSIC i.e., UNIVERSAL MUSIC and ScanSource go up and down completely randomly.

Pair Corralation between UNIVERSAL MUSIC and ScanSource

Assuming the 90 days horizon UNIVERSAL MUSIC is expected to generate 2.86 times less return on investment than ScanSource. But when comparing it to its historical volatility, UNIVERSAL MUSIC GROUP is 1.18 times less risky than ScanSource. It trades about 0.02 of its potential returns per unit of risk. ScanSource is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  3,260  in ScanSource on September 28, 2024 and sell it today you would earn a total of  1,300  from holding ScanSource or generate 39.88% 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.  ScanSource

UNIVERSAL MUSIC GROUP

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in UNIVERSAL MUSIC GROUP are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, UNIVERSAL MUSIC is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

ScanSource

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ScanSource are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, ScanSource may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with UNIVERSAL MUSIC and ScanSource

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

The idea behind UNIVERSAL MUSIC GROUP and ScanSource 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.

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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.