Correlation Between UNIVERSAL MUSIC and ELECTRONIC ARTS

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

Diversification Opportunities for UNIVERSAL MUSIC and ELECTRONIC ARTS

0.49

Correlation Coefficient

UNIVERSAL MUSIC  ELECTRONIC ARTS

Very weak diversification

The 3 months correlation between UNIVERSAL and ELECTRONIC is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding UNIVERSAL MUSIC GROUP and ELECTRONIC ARTS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ELECTRONIC ARTS 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 ELECTRONIC ARTS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ELECTRONIC ARTS has no effect on the direction of UNIVERSAL MUSIC i.e., UNIVERSAL MUSIC and ELECTRONIC ARTS go up and down completely randomly.

Pair Corralation between UNIVERSAL MUSIC and ELECTRONIC ARTS

Assuming the 90 days horizon UNIVERSAL MUSIC GROUP is expected to generate 1.06 times more return on investment than ELECTRONIC ARTS. However, UNIVERSAL MUSIC is 1.06 times more volatile than ELECTRONIC ARTS. It trades about 0.04 of its potential returns per unit of risk. ELECTRONIC ARTS is currently generating about 0.01 per unit of risk. If you would invest  2,076  in UNIVERSAL MUSIC GROUP on April 15, 2025 and sell it today you would earn a total of  551.00  from holding UNIVERSAL MUSIC GROUP or generate 26.54% return on investment over 90 days.

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

UNIVERSAL MUSIC GROUP  vs.  ELECTRONIC ARTS

UNIVERSAL MUSIC GROUP

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in UNIVERSAL MUSIC GROUP are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, UNIVERSAL MUSIC may actually be approaching a critical reversion point that can send shares even higher in August 2025.

ELECTRONIC ARTS

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ELECTRONIC ARTS are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, ELECTRONIC ARTS is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with UNIVERSAL MUSIC and ELECTRONIC ARTS

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

The idea behind UNIVERSAL MUSIC GROUP and ELECTRONIC ARTS 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.