Correlation Between Universal Music and ASML Holding

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

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

Diversification Opportunities for Universal Music and ASML Holding

0.64

Correlation Coefficient

Universal Music  ASML Holding

Poor diversification

The 3 months correlation between Universal and ASML is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Universal Music Group and ASML Holding NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ASML Holding NV and Universal Music 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 Universal Music Group are associated (or correlated) with ASML Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ASML Holding NV has no effect on the direction of Universal Music i.e., Universal Music and ASML Holding go up and down completely randomly.

Pair Corralation between Universal Music and ASML Holding

Assuming the 90 days trading horizon Universal Music is expected to generate 3.56 times less return on investment than ASML Holding. But when comparing it to its historical volatility, Universal Music Group is 1.8 times less risky than ASML Holding. It trades about 0.05 of its potential returns per unit of risk. ASML Holding NV is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  65,608  in ASML Holding NV on October 20, 2024 and sell it today you would earn a total of  8,302  from holding ASML Holding NV or generate 12.65% return on investment over 90 days.

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

Universal Music Group  vs.  ASML Holding NV

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. In spite of comparatively stable technical and fundamental indicators, Universal Music is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

ASML Holding NV

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ASML Holding NV are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, ASML Holding unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Universal Music and ASML Holding

The main advantage of trading using opposite Universal Music and ASML Holding positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Universal Music position performs unexpectedly, ASML Holding 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 ASML Holding will offset losses from the drop in ASML Holding's long position.

The idea behind Universal Music Group and ASML Holding NV 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.