Correlation Between Universal Health and Amazon

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

Diversification Opportunities for Universal Health and Amazon

-0.76

Correlation Coefficient

Universal Health  Amazon

Pay attention - limited upside

The 3 months correlation between Universal and Amazon is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Universal Health Services and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc 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 Amazon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amazon Inc has no effect on the direction of Universal Health i.e., Universal Health and Amazon go up and down completely randomly.

Pair Corralation between Universal Health and Amazon

Assuming the 90 days trading horizon Universal Health Services is expected to under-perform the Amazon. But the stock apears to be less risky and, when comparing its historical volatility, Universal Health Services is 1.25 times less risky than Amazon. The stock trades about -0.01 of its potential returns per unit of risk. The Amazon Inc is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  18,775  in Amazon Inc on September 24, 2024 and sell it today you would earn a total of  3,775  from holding Amazon Inc or generate 20.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	97.66%
Values	Daily Returns

Universal Health Services  vs.  Amazon Inc

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 uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Amazon Inc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Amazon unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Universal Health and Amazon

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

The idea behind Universal Health Services and Amazon Inc 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.