Correlation Between Este Lauder and Universal Music

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

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

Diversification Opportunities for Este Lauder and Universal Music

-0.26

Correlation Coefficient

Este Lauder  Universal Music

Very good diversification

The 3 months correlation between Este and Universal is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding The Este Lauder 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 Este Lauder 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 The Este Lauder 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 Este Lauder i.e., Este Lauder and Universal Music go up and down completely randomly.

Pair Corralation between Este Lauder and Universal Music

Assuming the 90 days trading horizon The Este Lauder is expected to under-perform the Universal Music. In addition to that, Este Lauder is 1.7 times more volatile than Universal Music Group. It trades about -0.05 of its total potential returns per unit of risk. Universal Music Group is currently generating about 0.05 per unit of volatility. If you would invest  2,470  in Universal Music Group on December 30, 2024 and sell it today you would earn a total of  115.00  from holding Universal Music Group or generate 4.66% return on investment over 90 days.

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

The Este Lauder  vs.  Universal Music Group

Este Lauder

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Este Lauder has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's forward indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Universal Music Group

Risk-Adjusted Performance

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 fairly strong technical and fundamental indicators, Universal Music is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Este Lauder and Universal Music

The main advantage of trading using opposite Este Lauder and Universal Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Este Lauder 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 The Este Lauder 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.