Correlation Between Universal Music and Xunlei

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

Diversification Opportunities for Universal Music and Xunlei

-0.01

Correlation Coefficient

Universal Music  Xunlei

Good diversification

The 3 months correlation between Universal and Xunlei is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Universal Music Group and Xunlei Ltd Adr in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xunlei Ltd Adr 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 Xunlei. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xunlei Ltd Adr has no effect on the direction of Universal Music i.e., Universal Music and Xunlei go up and down completely randomly.

Pair Corralation between Universal Music and Xunlei

Assuming the 90 days horizon Universal Music is expected to generate 1.43 times less return on investment than Xunlei. But when comparing it to its historical volatility, Universal Music Group is 1.52 times less risky than Xunlei. It trades about 0.02 of its potential returns per unit of risk. Xunlei Ltd Adr is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  214.00  in Xunlei Ltd Adr on September 28, 2024 and sell it today you would lose (4.00) from holding Xunlei Ltd Adr or give up 1.87% of portfolio value over 90 days.

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

Universal Music Group  vs.  Xunlei Ltd Adr

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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Xunlei Ltd Adr

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Xunlei Ltd Adr are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Xunlei unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Universal Music and Xunlei

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

The idea behind Universal Music Group and Xunlei Ltd Adr 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.