Correlation Between CVW CleanTech and Universal Music

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

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

Diversification Opportunities for CVW CleanTech and Universal Music

0.22

Correlation Coefficient

CVW CleanTech  Universal Music

Modest diversification

The 3 months correlation between CVW and Universal is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding CVW CleanTech 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 CVW CleanTech 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 CVW CleanTech 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 CVW CleanTech i.e., CVW CleanTech and Universal Music go up and down completely randomly.

Pair Corralation between CVW CleanTech and Universal Music

Assuming the 90 days horizon CVW CleanTech is expected to generate 3.59 times more return on investment than Universal Music. However, CVW CleanTech is 3.59 times more volatile than Universal Music Group. It trades about 0.06 of its potential returns per unit of risk. Universal Music Group is currently generating about 0.01 per unit of risk. If you would invest  40.00  in CVW CleanTech on September 21, 2024 and sell it today you would earn a total of  22.00  from holding CVW CleanTech or generate 55.0% return on investment over 90 days.

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

CVW CleanTech  vs.  Universal Music Group

CVW CleanTech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVW CleanTech has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

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. 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 CVW CleanTech and Universal Music

The main advantage of trading using opposite CVW CleanTech and Universal Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CVW CleanTech 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 CVW CleanTech 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.

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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.