Correlation Between UNIVERSAL MUSIC and Japan Tobacco

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

Diversification Opportunities for UNIVERSAL MUSIC and Japan Tobacco

0.03

Correlation Coefficient

UNIVERSAL MUSIC  Japan Tobacco

Significant diversification

The 3 months correlation between UNIVERSAL and Japan is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding UNIVERSAL MUSIC GROUP and Japan Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Tobacco 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 Japan Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Japan Tobacco has no effect on the direction of UNIVERSAL MUSIC i.e., UNIVERSAL MUSIC and Japan Tobacco go up and down completely randomly.

Pair Corralation between UNIVERSAL MUSIC and Japan Tobacco

Assuming the 90 days horizon UNIVERSAL MUSIC GROUP is expected to generate 0.99 times more return on investment than Japan Tobacco. However, UNIVERSAL MUSIC GROUP is 1.01 times less risky than Japan Tobacco. It trades about 0.14 of its potential returns per unit of risk. Japan Tobacco is currently generating about -0.05 per unit of risk. If you would invest  2,442  in UNIVERSAL MUSIC GROUP on April 24, 2025 and sell it today you would earn a total of  258.00  from holding UNIVERSAL MUSIC GROUP or generate 10.57% return on investment over 90 days.

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

UNIVERSAL MUSIC GROUP  vs.  Japan Tobacco

UNIVERSAL MUSIC GROUP

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in UNIVERSAL MUSIC GROUP are ranked lower than 10 (%) 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.

Japan Tobacco

Risk-Adjusted Performance

Very Weak

Over the last 90 days Japan Tobacco has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Japan Tobacco is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with UNIVERSAL MUSIC and Japan Tobacco

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

The idea behind UNIVERSAL MUSIC GROUP and Japan Tobacco 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.