Correlation Between HCA Holdings and Universal Health

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

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

Diversification Opportunities for HCA Holdings and Universal Health

0.89

Correlation Coefficient

HCA Holdings  Universal Health

Very poor diversification

The 3 months correlation between HCA and Universal is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding HCA Holdings 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 HCA Holdings 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 HCA Holdings 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 HCA Holdings i.e., HCA Holdings and Universal Health go up and down completely randomly.

Pair Corralation between HCA Holdings and Universal Health

Considering the 90-day investment horizon HCA Holdings is expected to generate 1.49 times less return on investment than Universal Health. But when comparing it to its historical volatility, HCA Holdings is 1.16 times less risky than Universal Health. It trades about 0.05 of its potential returns per unit of risk. Universal Health Services is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  12,725  in Universal Health Services on September 2, 2024 and sell it today you would earn a total of  7,775  from holding Universal Health Services or generate 61.1% return on investment over 90 days.

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

HCA Holdings  vs.  Universal Health Services

HCA Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HCA Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Etf's fundamental indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the ETF investors.

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 fragile performance in the last few months, the Stock's technical 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 HCA Holdings and Universal Health

The main advantage of trading using opposite HCA Holdings and Universal Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HCA Holdings 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 HCA Holdings 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.