Correlation Between Universal Music and Enlight Renewable

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

Diversification Opportunities for Universal Music and Enlight Renewable

-0.14

Correlation Coefficient

Universal Music  Enlight Renewable

Good diversification

The 3 months correlation between Universal and Enlight is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Universal Music Group and Enlight Renewable Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enlight Renewable Energy 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 Enlight Renewable. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enlight Renewable Energy has no effect on the direction of Universal Music i.e., Universal Music and Enlight Renewable go up and down completely randomly.

Pair Corralation between Universal Music and Enlight Renewable

Assuming the 90 days horizon Universal Music is expected to generate 111.48 times less return on investment than Enlight Renewable. But when comparing it to its historical volatility, Universal Music Group is 30.39 times less risky than Enlight Renewable. It trades about 0.02 of its potential returns per unit of risk. Enlight Renewable Energy is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  196.00  in Enlight Renewable Energy on September 21, 2024 and sell it today you would earn a total of  1,350  from holding Enlight Renewable Energy or generate 688.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Universal Music Group  vs.  Enlight Renewable Energy

Universal Music Group

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Music Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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.

Enlight Renewable Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Enlight Renewable Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable essential indicators, Enlight Renewable is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Universal Music and Enlight Renewable

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

The idea behind Universal Music Group and Enlight Renewable Energy 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.