Correlation Between Universal Health and Costco Wholesale

Can any of the company-specific risk be diversified away by investing in both Universal Health and Costco Wholesale 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 Costco Wholesale 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 Costco Wholesale, you can compare the effects of market volatilities on Universal Health and Costco Wholesale 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 Costco Wholesale. Check out your portfolio center. Please also check ongoing floating volatility patterns of Universal Health and Costco Wholesale.

Diversification Opportunities for Universal Health and Costco Wholesale

0.18

Correlation Coefficient

Universal Health  Costco Wholesale

Average diversification

The 3 months correlation between Universal and Costco is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Universal Health Services, and Costco Wholesale in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Costco Wholesale 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 Costco Wholesale. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Costco Wholesale has no effect on the direction of Universal Health i.e., Universal Health and Costco Wholesale go up and down completely randomly.

Pair Corralation between Universal Health and Costco Wholesale

Assuming the 90 days trading horizon Universal Health Services, is expected to generate 0.55 times more return on investment than Costco Wholesale. However, Universal Health Services, is 1.8 times less risky than Costco Wholesale. It trades about -0.14 of its potential returns per unit of risk. Costco Wholesale is currently generating about -0.08 per unit of risk. If you would invest  29,371  in Universal Health Services, on December 26, 2024 and sell it today you would lose (2,944) from holding Universal Health Services, or give up 10.02% of portfolio value over 90 days.

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

Universal Health Services,  vs.  Costco Wholesale

Universal Health Ser

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. Despite latest weak performance, the Stock's technical indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Costco Wholesale

Risk-Adjusted Performance

Very Weak

Over the last 90 days Costco Wholesale has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Universal Health and Costco Wholesale

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

The idea behind Universal Health Services, and Costco Wholesale 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.