Correlation Between Universal Music and Park Hotels

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

Diversification Opportunities for Universal Music and Park Hotels

-0.46

Correlation Coefficient

Universal Music  Park Hotels

Very good diversification

The 3 months correlation between Universal and Park is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Universal Music Group and Park Hotels Resorts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Park Hotels Resorts 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 Park Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Park Hotels Resorts has no effect on the direction of Universal Music i.e., Universal Music and Park Hotels go up and down completely randomly.

Pair Corralation between Universal Music and Park Hotels

Assuming the 90 days horizon Universal Music is expected to generate 3.29 times less return on investment than Park Hotels. But when comparing it to its historical volatility, Universal Music Group is 1.4 times less risky than Park Hotels. It trades about 0.02 of its potential returns per unit of risk. Park Hotels Resorts is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,328  in Park Hotels Resorts on October 25, 2024 and sell it today you would earn a total of  51.00  from holding Park Hotels Resorts or generate 3.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

Universal Music Group  vs.  Park Hotels Resorts

Universal Music Group

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Music Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Park Hotels Resorts

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Park Hotels Resorts are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward-looking signals, Park Hotels is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Universal Music and Park Hotels

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

The idea behind Universal Music Group and Park Hotels Resorts 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.