Correlation Between Applied Materials and Universal Health

Can any of the company-specific risk be diversified away by investing in both Applied Materials 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 Applied Materials and Universal Health into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Applied Materials and Universal Health Services, you can compare the effects of market volatilities on Applied Materials 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 Applied Materials with a short position of Universal Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Applied Materials and Universal Health.

Diversification Opportunities for Applied Materials and Universal Health

0.15

Correlation Coefficient

Applied Materials  Universal Health

Average diversification

The 3 months correlation between Applied and Universal is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials 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 Applied Materials 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 Applied Materials 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 Applied Materials i.e., Applied Materials and Universal Health go up and down completely randomly.

Pair Corralation between Applied Materials and Universal Health

Assuming the 90 days trading horizon Applied Materials is expected to generate 1.26 times more return on investment than Universal Health. However, Applied Materials is 1.26 times more volatile than Universal Health Services. It trades about -0.08 of its potential returns per unit of risk. Universal Health Services is currently generating about -0.14 per unit of risk. If you would invest  18,220  in Applied Materials on December 1, 2024 and sell it today you would lose (2,330) from holding Applied Materials or give up 12.79% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.16%
Values	Daily Returns

Applied Materials  vs.  Universal Health Services

Applied Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days Applied Materials 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.

Universal Health Services

Risk-Adjusted Performance

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 April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Applied Materials and Universal Health

The main advantage of trading using opposite Applied Materials and Universal Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied Materials 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 idea behind Applied Materials 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.

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 the Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.