Correlation Between Universal Music and Disney

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

Diversification Opportunities for Universal Music and Disney

-0.45

Correlation Coefficient

Universal Music  Disney

Very good diversification

The 3 months correlation between Universal and Disney is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Universal Music Group and Walt Disney in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walt Disney 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 Disney. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Walt Disney has no effect on the direction of Universal Music i.e., Universal Music and Disney go up and down completely randomly.

Pair Corralation between Universal Music and Disney

Assuming the 90 days horizon Universal Music is expected to generate 3.13 times less return on investment than Disney. In addition to that, Universal Music is 1.58 times more volatile than Walt Disney. It trades about 0.04 of its total potential returns per unit of risk. Walt Disney is currently generating about 0.18 per unit of volatility. If you would invest  9,461  in Walt Disney on October 25, 2024 and sell it today you would earn a total of  1,420  from holding Walt Disney or generate 15.01% return on investment over 90 days.

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

Universal Music Group  vs.  Walt Disney

Universal Music Group

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Music Group are ranked lower than 2 (%) 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.

Walt Disney

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Walt Disney are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward indicators, Disney unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Universal Music and Disney

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

The idea behind Universal Music Group and Walt Disney 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.