Correlation Between Universal Music and Wendys

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

Diversification Opportunities for Universal Music and Wendys

-0.09

Correlation Coefficient

Universal Music  Wendys

Good diversification

The 3 months correlation between Universal and Wendys is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Universal Music Group and The Wendys Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Wendys 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 Wendys. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Wendys has no effect on the direction of Universal Music i.e., Universal Music and Wendys go up and down completely randomly.

Pair Corralation between Universal Music and Wendys

Assuming the 90 days horizon Universal Music Group is expected to generate 1.27 times more return on investment than Wendys. However, Universal Music is 1.27 times more volatile than The Wendys Co. It trades about 0.08 of its potential returns per unit of risk. The Wendys Co is currently generating about -0.07 per unit of risk. If you would invest  2,511  in Universal Music Group on December 29, 2024 and sell it today you would earn a total of  252.00  from holding Universal Music Group or generate 10.04% return on investment over 90 days.

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

Universal Music Group  vs.  The Wendys Co

Universal Music Group

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Music Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Universal Music may actually be approaching a critical reversion point that can send shares even higher in April 2025.

The Wendys

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Wendys Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Universal Music and Wendys

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

The idea behind Universal Music Group and The Wendys Co 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.

Check out your portfolio center.

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.