Correlation Between Universal Music and Summit Hotel

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

Diversification Opportunities for Universal Music and Summit Hotel

0.23

Correlation Coefficient

Universal Music  Summit Hotel

Modest diversification

The 3 months correlation between Universal and Summit is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Universal Music Group and Summit Hotel Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Summit Hotel Properties 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 Summit Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Summit Hotel Properties has no effect on the direction of Universal Music i.e., Universal Music and Summit Hotel go up and down completely randomly.

Pair Corralation between Universal Music and Summit Hotel

Assuming the 90 days horizon Universal Music Group is expected to under-perform the Summit Hotel. But the pink sheet apears to be less risky and, when comparing its historical volatility, Universal Music Group is 1.55 times less risky than Summit Hotel. The pink sheet trades about -0.06 of its potential returns per unit of risk. The Summit Hotel Properties is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  662.00  in Summit Hotel Properties on October 8, 2024 and sell it today you would earn a total of  9.00  from holding Summit Hotel Properties or generate 1.36% return on investment over 90 days.

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

Universal Music Group  vs.  Summit Hotel Properties

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. In spite of fairly strong technical and fundamental indicators, Universal Music is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Summit Hotel Properties

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Summit Hotel Properties are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Summit Hotel is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Universal Music and Summit Hotel

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

The idea behind Universal Music Group and Summit Hotel Properties 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.