Correlation Between Universal Health and Snowflake

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

Diversification Opportunities for Universal Health and Snowflake

0.22

Correlation Coefficient

Universal Health  Snowflake

Modest diversification

The 3 months correlation between Universal and Snowflake is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Universal Health Services, and Snowflake in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Snowflake 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 Snowflake. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Snowflake has no effect on the direction of Universal Health i.e., Universal Health and Snowflake go up and down completely randomly.

Pair Corralation between Universal Health and Snowflake

Assuming the 90 days trading horizon Universal Health Services, is expected to under-perform the Snowflake. But the stock apears to be less risky and, when comparing its historical volatility, Universal Health Services, is 2.55 times less risky than Snowflake. The stock trades about -0.14 of its potential returns per unit of risk. The Snowflake is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  2,535  in Snowflake on December 26, 2024 and sell it today you would lose (213.00) from holding Snowflake or give up 8.4% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Universal Health Services,  vs.  Snowflake

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.

Snowflake

Risk-Adjusted Performance

Very Weak

Over the last 90 days Snowflake has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Snowflake 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 Snowflake

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

The idea behind Universal Health Services, and Snowflake 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.