Correlation Between Universal Health and Premier Foods

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

Diversification Opportunities for Universal Health and Premier Foods

-0.27

Correlation Coefficient

Universal Health  Premier Foods

Very good diversification

The 3 months correlation between Universal and Premier is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Universal Health Services and Premier Foods PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Premier Foods PLC 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 Premier Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Premier Foods PLC has no effect on the direction of Universal Health i.e., Universal Health and Premier Foods go up and down completely randomly.

Pair Corralation between Universal Health and Premier Foods

Assuming the 90 days trading horizon Universal Health Services is expected to under-perform the Premier Foods. In addition to that, Universal Health is 1.72 times more volatile than Premier Foods PLC. It trades about -0.16 of its total potential returns per unit of risk. Premier Foods PLC is currently generating about 0.05 per unit of volatility. If you would invest  18,300  in Premier Foods PLC on September 14, 2024 and sell it today you would earn a total of  600.00  from holding Premier Foods PLC or generate 3.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Universal Health Services  vs.  Premier Foods PLC

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 unsteady 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.

Premier Foods PLC

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Premier Foods PLC are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Premier Foods is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Universal Health and Premier Foods

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

The idea behind Universal Health Services and Premier Foods PLC 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.