Correlation Between Universal Music and Flow Traders

Can any of the company-specific risk be diversified away by investing in both Universal Music and Flow Traders 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 Flow Traders 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 Flow Traders BV, you can compare the effects of market volatilities on Universal Music and Flow Traders 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 Flow Traders. Check out your portfolio center. Please also check ongoing floating volatility patterns of Universal Music and Flow Traders.

Diversification Opportunities for Universal Music and Flow Traders

0.36

Correlation Coefficient

Universal Music  Flow Traders

Weak diversification

The 3 months correlation between Universal and Flow is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Universal Music Group and Flow Traders BV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Flow Traders BV 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 Flow Traders. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Flow Traders BV has no effect on the direction of Universal Music i.e., Universal Music and Flow Traders go up and down completely randomly.

Pair Corralation between Universal Music and Flow Traders

Assuming the 90 days trading horizon Universal Music is expected to generate 1.83 times less return on investment than Flow Traders. But when comparing it to its historical volatility, Universal Music Group is 1.33 times less risky than Flow Traders. It trades about 0.14 of its potential returns per unit of risk. Flow Traders BV is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  2,116  in Flow Traders BV on October 10, 2024 and sell it today you would earn a total of  134.00  from holding Flow Traders BV or generate 6.33% return on investment over 90 days.

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

Universal Music Group  vs.  Flow Traders BV

Universal Music Group

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Music Group are ranked lower than 4 (%) 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.

Flow Traders BV

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Flow Traders BV are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Flow Traders may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Universal Music and Flow Traders

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

The idea behind Universal Music Group and Flow Traders BV 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 Directory module to find actively traded commodities issued by global exchanges.