Correlation Between Universal Music and Addiko Bank

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

Diversification Opportunities for Universal Music and Addiko Bank

0.2

Correlation Coefficient

Universal Music  Addiko Bank

Modest diversification

The 3 months correlation between Universal and Addiko is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Universal Music Group and Addiko Bank AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Addiko Bank AG 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 Addiko Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Addiko Bank AG has no effect on the direction of Universal Music i.e., Universal Music and Addiko Bank go up and down completely randomly.

Pair Corralation between Universal Music and Addiko Bank

Assuming the 90 days trading horizon Universal Music Group is expected to under-perform the Addiko Bank. But the stock apears to be less risky and, when comparing its historical volatility, Universal Music Group is 1.71 times less risky than Addiko Bank. The stock trades about -0.04 of its potential returns per unit of risk. The Addiko Bank AG is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,710  in Addiko Bank AG on September 2, 2024 and sell it today you would earn a total of  240.00  from holding Addiko Bank AG or generate 14.04% 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.  Addiko Bank AG

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 fairly strong technical and fundamental indicators, Universal Music is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Addiko Bank AG

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Addiko Bank AG are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent forward indicators, Addiko Bank demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Universal Music and Addiko Bank

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

The idea behind Universal Music Group and Addiko Bank AG 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.