Correlation Between Universal Music and NORFOLK

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

Diversification Opportunities for Universal Music and NORFOLK

-0.19

Correlation Coefficient

Universal Music  NORFOLK

Good diversification

The 3 months correlation between Universal and NORFOLK is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Universal Music Group and NORFOLK SOUTHN P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NORFOLK SOUTHN P 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 NORFOLK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NORFOLK SOUTHN P has no effect on the direction of Universal Music i.e., Universal Music and NORFOLK go up and down completely randomly.

Pair Corralation between Universal Music and NORFOLK

Assuming the 90 days horizon Universal Music is expected to generate 53.81 times less return on investment than NORFOLK. But when comparing it to its historical volatility, Universal Music Group is 22.11 times less risky than NORFOLK. It trades about 0.02 of its potential returns per unit of risk. NORFOLK SOUTHN P is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  9,404  in NORFOLK SOUTHN P on September 26, 2024 and sell it today you would earn a total of  369.00  from holding NORFOLK SOUTHN P or generate 3.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	87.5%
Values	Daily Returns

Universal Music Group  vs.  NORFOLK SOUTHN P

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 nearly stable basic indicators, Universal Music is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

NORFOLK SOUTHN P

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NORFOLK SOUTHN P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, NORFOLK is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Universal Music and NORFOLK

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

The idea behind Universal Music Group and NORFOLK SOUTHN P 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.