Correlation Between Universal Health and Extra Space

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

Diversification Opportunities for Universal Health and Extra Space

0.73

Correlation Coefficient

Universal Health  Extra Space

Poor diversification

The 3 months correlation between Universal and Extra is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Universal Health Services and Extra Space Storage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Extra Space Storage 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 Extra Space. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Extra Space Storage has no effect on the direction of Universal Health i.e., Universal Health and Extra Space go up and down completely randomly.

Pair Corralation between Universal Health and Extra Space

Assuming the 90 days trading horizon Universal Health Services is expected to generate 1.26 times more return on investment than Extra Space. However, Universal Health is 1.26 times more volatile than Extra Space Storage. It trades about -0.09 of its potential returns per unit of risk. Extra Space Storage is currently generating about -0.12 per unit of risk. If you would invest  21,385  in Universal Health Services on October 11, 2024 and sell it today you would lose (2,527) from holding Universal Health Services or give up 11.82% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.83%
Values	Daily Returns

Universal Health Services  vs.  Extra Space Storage

Universal Health Services

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Universal Health Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Extra Space Storage

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Extra Space Storage has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Universal Health and Extra Space

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

The idea behind Universal Health Services and Extra Space Storage 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.