Correlation Between Reading International and Universal Music

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

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

Diversification Opportunities for Reading International and Universal Music

0.07

Correlation Coefficient

Reading International  Universal Music

Significant diversification

The 3 months correlation between Reading and Universal is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Reading International 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 Reading International 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 Reading International 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 Reading International i.e., Reading International and Universal Music go up and down completely randomly.

Pair Corralation between Reading International and Universal Music

Considering the 90-day investment horizon Reading International is expected to generate 1.91 times more return on investment than Universal Music. However, Reading International is 1.91 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 0.09 per unit of risk. If you would invest  126.00  in Reading International on December 21, 2024 and sell it today you would earn a total of  14.00  from holding Reading International or generate 11.11% return on investment over 90 days.

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

Reading International  vs.  Universal Music Group

Reading International

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Reading International are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak fundamental indicators, Reading International demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Universal Music Group

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Music Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Universal Music may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Reading International and Universal Music

The main advantage of trading using opposite Reading International and Universal Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Reading International 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 Reading International 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.