Correlation Between Universal Music and Fox Corp

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

Diversification Opportunities for Universal Music and Fox Corp

0.84

Correlation Coefficient

Universal Music  Fox Corp

Very poor diversification

The 3 months correlation between Universal and Fox is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Universal Music Group and Fox Corp Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fox Corp Class 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 Fox Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fox Corp Class has no effect on the direction of Universal Music i.e., Universal Music and Fox Corp go up and down completely randomly.

Pair Corralation between Universal Music and Fox Corp

Assuming the 90 days horizon Universal Music Group is expected to generate 1.65 times more return on investment than Fox Corp. However, Universal Music is 1.65 times more volatile than Fox Corp Class. It trades about 0.09 of its potential returns per unit of risk. Fox Corp Class is currently generating about 0.07 per unit of risk. If you would invest  2,542  in Universal Music Group on December 20, 2024 and sell it today you would earn a total of  294.00  from holding Universal Music Group or generate 11.57% return on investment over 90 days.

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

Universal Music Group  vs.  Fox Corp Class

Universal Music Group

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Music Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Universal Music reported solid returns over the last few months and may actually be approaching a breakup point.

Fox Corp Class

Risk-Adjusted Performance

Modest

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

Pair Trading with Universal Music and Fox Corp

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

The idea behind Universal Music Group and Fox Corp Class 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.