Correlation Between NatWest Group and HCA Healthcare

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

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

Diversification Opportunities for NatWest Group and HCA Healthcare

0.61

Correlation Coefficient

NatWest Group  HCA Healthcare

Poor diversification

The 3 months correlation between NatWest and HCA is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding NatWest Group PLC and HCA Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HCA Healthcare and NatWest Group 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 NatWest Group PLC are associated (or correlated) with HCA Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HCA Healthcare has no effect on the direction of NatWest Group i.e., NatWest Group and HCA Healthcare go up and down completely randomly.

Pair Corralation between NatWest Group and HCA Healthcare

Assuming the 90 days trading horizon NatWest Group PLC is expected to generate 0.9 times more return on investment than HCA Healthcare. However, NatWest Group PLC is 1.11 times less risky than HCA Healthcare. It trades about 0.17 of its potential returns per unit of risk. HCA Healthcare is currently generating about 0.1 per unit of risk. If you would invest  38,649  in NatWest Group PLC on December 27, 2024 and sell it today you would earn a total of  8,011  from holding NatWest Group PLC or generate 20.73% return on investment over 90 days.

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

NatWest Group PLC  vs.  HCA Healthcare

NatWest Group PLC

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NatWest Group PLC are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, NatWest Group exhibited solid returns over the last few months and may actually be approaching a breakup point.

HCA Healthcare

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HCA Healthcare are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, HCA Healthcare unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NatWest Group and HCA Healthcare

The main advantage of trading using opposite NatWest Group and HCA Healthcare positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NatWest Group position performs unexpectedly, HCA Healthcare 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 HCA Healthcare will offset losses from the drop in HCA Healthcare's long position.

The idea behind NatWest Group PLC and HCA Healthcare 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.