Correlation Between Universal Health and Coca Cola

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

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

Diversification Opportunities for Universal Health and Coca Cola

0.04

Correlation Coefficient

Universal Health  Coca Cola

Significant diversification

The 3 months correlation between Universal and Coca is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Universal Health Services, and The Coca Cola in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coca Cola and Universal Health 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 Universal Health Services, are associated (or correlated) with Coca Cola. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coca Cola has no effect on the direction of Universal Health i.e., Universal Health and Coca Cola go up and down completely randomly.

Pair Corralation between Universal Health and Coca Cola

Assuming the 90 days trading horizon Universal Health Services, is expected to generate 2.77 times more return on investment than Coca Cola. However, Universal Health is 2.77 times more volatile than The Coca Cola. It trades about 0.05 of its potential returns per unit of risk. The Coca Cola is currently generating about 0.05 per unit of risk. If you would invest  17,986  in Universal Health Services, on October 5, 2024 and sell it today you would earn a total of  11,407  from holding Universal Health Services, or generate 63.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.95%
Values	Daily Returns

Universal Health Services,  vs.  The Coca Cola

Universal Health Ser

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. Despite somewhat strong technical indicators, Universal Health is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Coca Cola

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Coca Cola are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, Coca Cola is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Universal Health and Coca Cola

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

The idea behind Universal Health Services, and The Coca Cola 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.

Check out your portfolio center.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.