Correlation Between Archer Daniels and UnitedHealth Group

Can any of the company-specific risk be diversified away by investing in both Archer Daniels and UnitedHealth Group 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 Archer Daniels and UnitedHealth Group into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Archer Daniels Midland and UnitedHealth Group Incorporated, you can compare the effects of market volatilities on Archer Daniels and UnitedHealth Group 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 Archer Daniels with a short position of UnitedHealth Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Archer Daniels and UnitedHealth Group.

Diversification Opportunities for Archer Daniels and UnitedHealth Group

0.32

Correlation Coefficient

Archer Daniels  UnitedHealth Group

Weak diversification

The 3 months correlation between Archer and UnitedHealth is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Archer Daniels Midland and UnitedHealth Group Incorporate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UnitedHealth Group and Archer Daniels 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 Archer Daniels Midland are associated (or correlated) with UnitedHealth Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UnitedHealth Group has no effect on the direction of Archer Daniels i.e., Archer Daniels and UnitedHealth Group go up and down completely randomly.

Pair Corralation between Archer Daniels and UnitedHealth Group

Assuming the 90 days trading horizon Archer Daniels Midland is expected to under-perform the UnitedHealth Group. But the stock apears to be less risky and, when comparing its historical volatility, Archer Daniels Midland is 4.13 times less risky than UnitedHealth Group. The stock trades about -0.09 of its potential returns per unit of risk. The UnitedHealth Group Incorporated is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,029,500  in UnitedHealth Group Incorporated on October 26, 2024 and sell it today you would earn a total of  46,700  from holding UnitedHealth Group Incorporated or generate 4.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Archer Daniels Midland  vs.  UnitedHealth Group Incorporate

Archer Daniels Midland

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Archer Daniels Midland has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

UnitedHealth Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days UnitedHealth Group Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical indicators, UnitedHealth Group is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Archer Daniels and UnitedHealth Group

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

The idea behind Archer Daniels Midland and UnitedHealth Group Incorporated 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .