Correlation Between Induction Healthcare and Universal Health

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

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

Diversification Opportunities for Induction Healthcare and Universal Health

-0.58

Correlation Coefficient

Induction Healthcare  Universal Health

Excellent diversification

The 3 months correlation between Induction and Universal is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Induction Healthcare Group 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 Induction Healthcare 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 Induction Healthcare Group 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 Induction Healthcare i.e., Induction Healthcare and Universal Health go up and down completely randomly.

Pair Corralation between Induction Healthcare and Universal Health

Assuming the 90 days trading horizon Induction Healthcare Group is expected to generate 1.64 times more return on investment than Universal Health. However, Induction Healthcare is 1.64 times more volatile than Universal Health Services. It trades about 0.04 of its potential returns per unit of risk. Universal Health Services is currently generating about -0.1 per unit of risk. If you would invest  850.00  in Induction Healthcare Group on September 1, 2024 and sell it today you would earn a total of  50.00  from holding Induction Healthcare Group or generate 5.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.92%
Values	Daily Returns

Induction Healthcare Group  vs.  Universal Health Services

Induction Healthcare

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Induction Healthcare Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Induction Healthcare may actually be approaching a critical reversion point that can send shares even higher in December 2024.

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 December 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Induction Healthcare and Universal Health

The main advantage of trading using opposite Induction Healthcare and Universal Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Induction Healthcare 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 Induction Healthcare Group 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.