Correlation Between Constellation Brands and Universal Music

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

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

Diversification Opportunities for Constellation Brands and Universal Music

0.27

Correlation Coefficient

Constellation Brands  Universal Music

Modest diversification

The 3 months correlation between Constellation and Universal is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Constellation Brands Class 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 Constellation Brands 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 Constellation Brands Class 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 Constellation Brands i.e., Constellation Brands and Universal Music go up and down completely randomly.

Pair Corralation between Constellation Brands and Universal Music

Considering the 90-day investment horizon Constellation Brands Class is expected to under-perform the Universal Music. But the stock apears to be less risky and, when comparing its historical volatility, Constellation Brands Class is 1.91 times less risky than Universal Music. The stock trades about -0.17 of its potential returns per unit of risk. The Universal Music Group is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  2,370  in Universal Music Group on September 21, 2024 and sell it today you would earn a total of  219.00  from holding Universal Music Group or generate 9.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Constellation Brands Class  vs.  Universal Music Group

Constellation Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Constellation Brands Class has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

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 Constellation Brands and Universal Music

The main advantage of trading using opposite Constellation Brands and Universal Music positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Constellation Brands 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 Constellation Brands Class 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.