Correlation Between Universal Health and Tyson Foods

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

Diversification Opportunities for Universal Health and Tyson Foods

0.19

Correlation Coefficient

Universal Health  Tyson Foods

Average diversification

The 3 months correlation between Universal and Tyson is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Universal Health Services, and Tyson Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tyson Foods 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 Tyson Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tyson Foods has no effect on the direction of Universal Health i.e., Universal Health and Tyson Foods go up and down completely randomly.

Pair Corralation between Universal Health and Tyson Foods

Assuming the 90 days trading horizon Universal Health Services, is expected to under-perform the Tyson Foods. But the stock apears to be less risky and, when comparing its historical volatility, Universal Health Services, is 1.18 times less risky than Tyson Foods. The stock trades about -0.14 of its potential returns per unit of risk. The Tyson Foods is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  35,727  in Tyson Foods on December 25, 2024 and sell it today you would lose (951.00) from holding Tyson Foods or give up 2.66% 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.  Tyson Foods

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.

Tyson Foods

Risk-Adjusted Performance

Very Weak

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

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

The idea behind Universal Health Services, and Tyson Foods 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.