Correlation Between Diversified Royalty and UnitedHealth Group

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

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

Diversification Opportunities for Diversified Royalty and UnitedHealth Group

0.64

Correlation Coefficient

Diversified Royalty  UnitedHealth Group

Poor diversification

The 3 months correlation between Diversified and UnitedHealth is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Diversified Royalty Corp and UnitedHealth Group CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UnitedHealth Group CDR and Diversified Royalty 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 Diversified Royalty Corp 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 CDR has no effect on the direction of Diversified Royalty i.e., Diversified Royalty and UnitedHealth Group go up and down completely randomly.

Pair Corralation between Diversified Royalty and UnitedHealth Group

Assuming the 90 days trading horizon Diversified Royalty Corp is expected to generate 0.44 times more return on investment than UnitedHealth Group. However, Diversified Royalty Corp is 2.27 times less risky than UnitedHealth Group. It trades about -0.1 of its potential returns per unit of risk. UnitedHealth Group CDR is currently generating about -0.16 per unit of risk. If you would invest  299.00  in Diversified Royalty Corp on October 11, 2024 and sell it today you would lose (6.00) from holding Diversified Royalty Corp or give up 2.01% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Diversified Royalty Corp  vs.  UnitedHealth Group CDR

Diversified Royalty Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diversified Royalty Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Diversified Royalty is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

UnitedHealth Group CDR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days UnitedHealth Group CDR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Diversified Royalty and UnitedHealth Group

The main advantage of trading using opposite Diversified Royalty and UnitedHealth Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diversified Royalty 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 Diversified Royalty Corp and UnitedHealth Group CDR 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.