Correlation Between Aegon NV and Universal Music

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

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

Diversification Opportunities for Aegon NV and Universal Music

-0.23

Correlation Coefficient

Aegon NV  Universal Music

Very good diversification

The 3 months correlation between Aegon and Universal is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Aegon NV ADR 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 Aegon NV 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 Aegon NV ADR 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 Aegon NV i.e., Aegon NV and Universal Music go up and down completely randomly.

Pair Corralation between Aegon NV and Universal Music

Considering the 90-day investment horizon Aegon NV ADR is expected to generate 0.74 times more return on investment than Universal Music. However, Aegon NV ADR is 1.35 times less risky than Universal Music. It trades about 0.08 of its potential returns per unit of risk. Universal Music Group is currently generating about -0.04 per unit of risk. If you would invest  601.00  in Aegon NV ADR on September 5, 2024 and sell it today you would earn a total of  40.00  from holding Aegon NV ADR or generate 6.66% return on investment over 90 days.

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

Aegon NV ADR  vs.  Universal Music Group

Aegon NV ADR

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Aegon NV ADR are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical and fundamental indicators, Aegon NV may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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

Pair Trading with Aegon NV and Universal Music

The main advantage of trading using opposite Aegon NV and Universal Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aegon NV 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 Aegon NV ADR 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.