Correlation Between Olympic Steel and Universal Music

Can any of the company-specific risk be diversified away by investing in both Olympic Steel and Universal Music 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 Olympic Steel and Universal Music into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Olympic Steel and Universal Music Group, you can compare the effects of market volatilities on Olympic Steel and Universal Music 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 Olympic Steel with a short position of Universal Music. Check out your portfolio center. Please also check ongoing floating volatility patterns of Olympic Steel and Universal Music.

Diversification Opportunities for Olympic Steel and Universal Music

-0.45

Correlation Coefficient

Olympic Steel  Universal Music

Very good diversification

The 3 months correlation between Olympic and Universal is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Olympic Steel and Universal Music Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Music Group and Olympic Steel 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 Olympic Steel are associated (or correlated) with Universal Music. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Music Group has no effect on the direction of Olympic Steel i.e., Olympic Steel and Universal Music go up and down completely randomly.

Pair Corralation between Olympic Steel and Universal Music

Given the investment horizon of 90 days Olympic Steel is expected to generate 1.4 times more return on investment than Universal Music. However, Olympic Steel is 1.4 times more volatile than Universal Music Group. It trades about 0.07 of its potential returns per unit of risk. Universal Music Group is currently generating about -0.04 per unit of risk. If you would invest  3,769  in Olympic Steel on September 5, 2024 and sell it today you would earn a total of  418.00  from holding Olympic Steel or generate 11.09% return on investment over 90 days.

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

Olympic Steel  vs.  Universal Music Group

Olympic Steel

Risk-Adjusted Performance

5 of 100

Modest

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

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.

Pair Trading with Olympic Steel and Universal Music

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

The idea behind Olympic Steel and Universal Music Group 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.