Correlation Between Four Seasons and Universal Music

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

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

Diversification Opportunities for Four Seasons and Universal Music

0.18

Correlation Coefficient

Four Seasons  Universal Music

Average diversification

The 3 months correlation between Four and Universal is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Four Seasons Education 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 Four Seasons 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 Four Seasons Education 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 Four Seasons i.e., Four Seasons and Universal Music go up and down completely randomly.

Pair Corralation between Four Seasons and Universal Music

Given the investment horizon of 90 days Four Seasons Education is expected to generate 22.82 times more return on investment than Universal Music. However, Four Seasons is 22.82 times more volatile than Universal Music Group. It trades about 0.05 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  647.00  in Four Seasons Education on October 23, 2024 and sell it today you would earn a total of  402.00  from holding Four Seasons Education or generate 62.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	83.0%
Values	Daily Returns

Four Seasons Education  vs.  Universal Music Group

Four Seasons Education

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Four Seasons Education has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

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 Four Seasons and Universal Music

The main advantage of trading using opposite Four Seasons and Universal Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Four Seasons 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 Four Seasons Education 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.