Correlation Between BAE Systems and Universal Health

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

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

Diversification Opportunities for BAE Systems and Universal Health

0.11

Correlation Coefficient

BAE Systems  Universal Health

Average diversification

The 3 months correlation between BAE and Universal is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding BAE Systems plc 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 BAE Systems 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 BAE Systems plc 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 BAE Systems i.e., BAE Systems and Universal Health go up and down completely randomly.

Pair Corralation between BAE Systems and Universal Health

Assuming the 90 days trading horizon BAE Systems plc is expected to under-perform the Universal Health. In addition to that, BAE Systems is 1.53 times more volatile than Universal Health Services. It trades about -0.23 of its total potential returns per unit of risk. Universal Health Services is currently generating about -0.32 per unit of volatility. If you would invest  20,257  in Universal Health Services on September 15, 2024 and sell it today you would lose (1,470) from holding Universal Health Services or give up 7.26% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	91.3%
Values	Daily Returns

BAE Systems plc  vs.  Universal Health Services

BAE Systems plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BAE Systems plc 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 sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

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.

Pair Trading with BAE Systems and Universal Health

The main advantage of trading using opposite BAE Systems and Universal Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BAE Systems 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 BAE Systems plc 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.

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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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.