Correlation Between Amazon and Universal Health

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

Diversification Opportunities for Amazon and Universal Health

0.0
  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between Amazon and Universal is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Universal Health Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Health Services and Amazon 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 Amazon Inc are associated (or correlated) with Universal Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Health Services has no effect on the direction of Amazon i.e., Amazon and Universal Health go up and down completely randomly.

Pair Corralation between Amazon and Universal Health

If you would invest  13,085  in Universal Health Services on September 1, 2022 and sell it today you would earn a total of  0.00  from holding Universal Health Services or generate 0.0% return on investment over 90 days.
Time Period3 Months [change]
DirectionFlat 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Amazon Inc  vs.  Universal Health Services

 Performance (%) 
       Timeline  
Amazon Inc 
Amazon Performance
0 of 100
Over the last 90 days Amazon Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Amazon is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.
Universal Health Services 
Universal Performance
0 of 100
Over the last 90 days Universal Health Services has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical indicators, Universal Health is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Amazon and Universal Health Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Amazon and Universal Health

The main advantage of trading using opposite Amazon and Universal Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, Universal Health 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 Health will offset losses from the drop in Universal Health's long position.
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 Amazon 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. Amazon'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, Amazon'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 Amazon Inc.
The idea behind Amazon Inc and Universal Health Services 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 Universal Health 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. Universal Health'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, Universal Health'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 Universal Health Services.
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 Transaction History module to view history of all your transactions and understand their impact on performance.

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