Correlation Between Commonwealth Bank and UNIVERSAL MUSIC

Can any of the company-specific risk be diversified away by investing in both Commonwealth Bank 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 Commonwealth Bank and UNIVERSAL MUSIC into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Commonwealth Bank of and UNIVERSAL MUSIC GROUP, you can compare the effects of market volatilities on Commonwealth Bank 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 Commonwealth Bank with a short position of UNIVERSAL MUSIC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Commonwealth Bank and UNIVERSAL MUSIC.

Diversification Opportunities for Commonwealth Bank and UNIVERSAL MUSIC

0.87

Correlation Coefficient

Commonwealth Bank  UNIVERSAL MUSIC

Very poor diversification

The 3 months correlation between Commonwealth and UNIVERSAL is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank of 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 Commonwealth Bank 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 Commonwealth Bank of 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 Commonwealth Bank i.e., Commonwealth Bank and UNIVERSAL MUSIC go up and down completely randomly.

Pair Corralation between Commonwealth Bank and UNIVERSAL MUSIC

Assuming the 90 days horizon Commonwealth Bank of is expected to generate 1.26 times more return on investment than UNIVERSAL MUSIC. However, Commonwealth Bank is 1.26 times more volatile than UNIVERSAL MUSIC GROUP. It trades about 0.19 of its potential returns per unit of risk. UNIVERSAL MUSIC GROUP is currently generating about 0.21 per unit of risk. If you would invest  8,245  in Commonwealth Bank of on April 8, 2025 and sell it today you would earn a total of  1,641  from holding Commonwealth Bank of or generate 19.9% return on investment over 90 days.

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

Commonwealth Bank of  vs.  UNIVERSAL MUSIC GROUP

Commonwealth Bank

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Commonwealth Bank of are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Commonwealth Bank reported solid returns over the last few months and may actually be approaching a breakup point.

UNIVERSAL MUSIC GROUP

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in UNIVERSAL MUSIC GROUP are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, UNIVERSAL MUSIC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Commonwealth Bank and UNIVERSAL MUSIC

The main advantage of trading using opposite Commonwealth Bank and UNIVERSAL MUSIC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Commonwealth Bank 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 Commonwealth Bank of 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.