Correlation Between Universal Health and Prudential Financial

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

Diversification Opportunities for Universal Health and Prudential Financial

-0.3

Correlation Coefficient

Universal Health  Prudential Financial

Very good diversification

The 3 months correlation between Universal and Prudential is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Universal Health Services, and Prudential Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Financial 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 Prudential Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Financial has no effect on the direction of Universal Health i.e., Universal Health and Prudential Financial go up and down completely randomly.

Pair Corralation between Universal Health and Prudential Financial

Assuming the 90 days trading horizon Universal Health Services, is expected to generate 1.26 times more return on investment than Prudential Financial. However, Universal Health is 1.26 times more volatile than Prudential Financial. It trades about -0.23 of its potential returns per unit of risk. Prudential Financial is currently generating about -0.34 per unit of risk. If you would invest  29,393  in Universal Health Services, on October 25, 2024 and sell it today you would lose (1,613) from holding Universal Health Services, or give up 5.49% of portfolio value over 90 days.

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

Universal Health Services,  vs.  Prudential Financial

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 weak performance in the last few months, the Stock's technical indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Prudential Financial

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Financial are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, Prudential Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Universal Health and Prudential Financial

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

The idea behind Universal Health Services, and Prudential Financial 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.