Correlation Between UNIVERSAL MUSIC and Constellation Software

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

Diversification Opportunities for UNIVERSAL MUSIC and Constellation Software

-0.4

Correlation Coefficient

UNIVERSAL MUSIC  Constellation Software

Very good diversification

The 3 months correlation between UNIVERSAL and Constellation is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding UNIVERSAL MUSIC GROUP and Constellation Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Constellation 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 Constellation Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Constellation Software has no effect on the direction of UNIVERSAL MUSIC i.e., UNIVERSAL MUSIC and Constellation Software go up and down completely randomly.

Pair Corralation between UNIVERSAL MUSIC and Constellation Software

Assuming the 90 days horizon UNIVERSAL MUSIC GROUP is expected to under-perform the Constellation Software. In addition to that, UNIVERSAL MUSIC is 1.18 times more volatile than Constellation Software. It trades about -0.04 of its total potential returns per unit of risk. Constellation Software is currently generating about 0.11 per unit of volatility. If you would invest  293,896  in Constellation Software on September 2, 2024 and sell it today you would earn a total of  25,104  from holding Constellation Software or generate 8.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

UNIVERSAL MUSIC GROUP  vs.  Constellation Software

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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Constellation Software

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Constellation Software are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental indicators, Constellation Software may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with UNIVERSAL MUSIC and Constellation Software

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

The idea behind UNIVERSAL MUSIC GROUP and Constellation 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.

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 Global Correlations module to find global opportunities by holding instruments from different markets.