Correlation Between Toyota and Universal Health

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

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

Diversification Opportunities for Toyota and Universal Health

-0.56

Correlation Coefficient

Toyota  Universal Health

Excellent diversification

The 3 months correlation between Toyota and Universal is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Motor Corp 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 Toyota 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 Toyota Motor Corp 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 Toyota i.e., Toyota and Universal Health go up and down completely randomly.

Pair Corralation between Toyota and Universal Health

Assuming the 90 days trading horizon Toyota Motor Corp is expected to under-perform the Universal Health. But the stock apears to be less risky and, when comparing its historical volatility, Toyota Motor Corp is 1.58 times less risky than Universal Health. The stock trades about -0.2 of its potential returns per unit of risk. The Universal Health Services is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  17,936  in Universal Health Services on December 2, 2024 and sell it today you would lose (781.00) from holding Universal Health Services or give up 4.35% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Toyota Motor Corp  vs.  Universal Health Services

Toyota Motor Corp

Risk-Adjusted Performance

Insignificant

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

Universal Health Services

Risk-Adjusted Performance

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 unsteady performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Toyota and Universal Health

The main advantage of trading using opposite Toyota and Universal Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Toyota 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 Toyota Motor Corp 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.