Correlation Between UnitedHealth Group and Automatic Data

Can any of the company-specific risk be diversified away by investing in both UnitedHealth Group and Automatic Data 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 UnitedHealth Group and Automatic Data into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between UnitedHealth Group Incorporated and Automatic Data Processing, you can compare the effects of market volatilities on UnitedHealth Group and Automatic Data 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 UnitedHealth Group with a short position of Automatic Data. Check out your portfolio center. Please also check ongoing floating volatility patterns of UnitedHealth Group and Automatic Data.

Diversification Opportunities for UnitedHealth Group and Automatic Data

0.06

Correlation Coefficient

UnitedHealth Group  Automatic Data

Significant diversification

The 3 months correlation between UnitedHealth and Automatic is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding UnitedHealth Group Incorporate and Automatic Data Processing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Automatic Data Processing and UnitedHealth Group 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 UnitedHealth Group Incorporated are associated (or correlated) with Automatic Data. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Automatic Data Processing has no effect on the direction of UnitedHealth Group i.e., UnitedHealth Group and Automatic Data go up and down completely randomly.

Pair Corralation between UnitedHealth Group and Automatic Data

Assuming the 90 days trading horizon UnitedHealth Group Incorporated is expected to generate 2.53 times more return on investment than Automatic Data. However, UnitedHealth Group is 2.53 times more volatile than Automatic Data Processing. It trades about -0.03 of its potential returns per unit of risk. Automatic Data Processing is currently generating about -0.13 per unit of risk. If you would invest  4,582  in UnitedHealth Group Incorporated on October 12, 2024 and sell it today you would lose (89.00) from holding UnitedHealth Group Incorporated or give up 1.94% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	89.47%
Values	Daily Returns

UnitedHealth Group Incorporate  vs.  Automatic Data Processing

UnitedHealth Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days UnitedHealth Group Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical indicators, UnitedHealth Group is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Automatic Data Processing

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Automatic Data Processing are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Automatic Data may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with UnitedHealth Group and Automatic Data

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

The idea behind UnitedHealth Group Incorporated and Automatic Data Processing 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.