Correlation Between Universal Health and DOW

Specify exactly 2 symbols:
Can any of the company-specific risk be diversified away by investing in both Universal Health and DOW 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 Health and DOW into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Universal Health Services and DOW, you can compare the effects of market volatilities on Universal Health and DOW 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 Health with a short position of DOW. Check out your portfolio center. Please also check ongoing floating volatility patterns of Universal Health and DOW.

Diversification Opportunities for Universal Health and DOW

0.85
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Universal and DOW is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Universal Health Services and DOW in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DOW and Universal Health 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 Health Services are associated (or correlated) with DOW. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DOW has no effect on the direction of Universal Health i.e., Universal Health and DOW go up and down completely randomly.
    Optimize

Pair Corralation between Universal Health and DOW

Considering the 90-day investment horizon Universal Health Services is expected to generate 1.72 times more return on investment than DOW. However, Universal Health is 1.72 times more volatile than DOW. It trades about -0.01 of its potential returns per unit of risk. DOW is currently generating about -0.07 per unit of risk. If you would invest  9,623  in Universal Health Services on July 7, 2022 and sell it today you would lose (152.00)  from holding Universal Health Services or give up 1.58% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Universal Health Services  vs.  DOW

 Performance (%) 
       Timeline  

Universal Health and DOW Volatility Contrast

   Predicted Return Density   
       Returns  

Universal Health Services

Pair trading matchups for Universal Health

DOW

Pair trading matchups for DOW

The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against DOW as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. DOW's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, DOW's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to DOW.

Pair Trading with Universal Health and DOW

The main advantage of trading using opposite Universal Health and DOW positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Universal Health position performs unexpectedly, DOW 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 DOW will offset losses from the drop in DOW's long position.
Universal Health vs. Amazon Inc
The idea behind Universal Health Services and DOW 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.
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against DOW as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. DOW's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, DOW's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to DOW.
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.

Other Complementary Tools

Balance Of Power
Check stock momentum by analyzing Balance Of Power indicator and other technical ratios
Go
Equity Forecasting
Use basic forecasting models to generate price predictions and determine price momentum
Go
Pair Correlation
Compare performance and examine fundamental relationship between any two equity instruments
Go
Watchlist Optimization
Optimize watchlists to build efficient portfolio or rebalance existing positions based on mean-variance optimization algorithm
Go
Portfolio Manager
State of the art Portfolio Manager to monitor and improve performance of your invested capital
Go
Probability Of Bankruptcy
Get analysis of equity chance of financial distress in the next 2 years
Go
Idea Optimizer
Use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio
Go
Risk-Return Analysis
View associations between returns expected from investment and the risk you assume
Go
Money Flow Index
Determine momentum by analyzing Money Flow Index and other technical indicators
Go