Correlation Between GM and Universal Health

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

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

Diversification Opportunities for GM and Universal Health

0.22

Correlation Coefficient

GM  Universal Health

Modest diversification

The 3 months correlation between GM and Universal is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding General Motors 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 GM 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 General Motors 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 GM i.e., GM and Universal Health go up and down completely randomly.

Pair Corralation between GM and Universal Health

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Universal Health. In addition to that, GM is 1.25 times more volatile than Universal Health Services. It trades about -0.06 of its total potential returns per unit of risk. Universal Health Services is currently generating about 0.05 per unit of volatility. If you would invest  17,718  in Universal Health Services on December 29, 2024 and sell it today you would earn a total of  992.00  from holding Universal Health Services or generate 5.6% return on investment over 90 days.

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

General Motors  vs.  Universal Health Services

General Motors

Risk-Adjusted Performance

Very Weak

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

Universal Health Services

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Health Services are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Universal Health may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with GM and Universal Health

The main advantage of trading using opposite GM and Universal Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM 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 General Motors 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..