Correlation Between Welltower and Universal Health

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

By analyzing existing cross correlation between Welltower and Universal Health Realty, you can compare the effects of market volatilities on Welltower and Universal Health 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 Welltower with a short position of Universal Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Welltower and Universal Health.

Diversification Opportunities for Welltower and Universal Health

0.87

Correlation Coefficient

Welltower  Universal Health

Very poor diversification

The 3 months correlation between Welltower and Universal is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Welltower and Universal Health Realty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Health Realty and Welltower 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 Welltower are associated (or correlated) with Universal Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Health Realty has no effect on the direction of Welltower i.e., Welltower and Universal Health go up and down completely randomly.

Pair Corralation between Welltower and Universal Health

Given the investment horizon of 90 days Welltower is expected to generate 1.03 times more return on investment than Universal Health. However, Welltower is 1.03 times more volatile than Universal Health Realty. It trades about 0.24 of its potential returns per unit of risk. Universal Health Realty is currently generating about 0.15 per unit of risk. If you would invest  12,436  in Welltower on December 30, 2024 and sell it today you would earn a total of  2,906  from holding Welltower or generate 23.37% return on investment over 90 days.

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

Welltower  vs.  Universal Health Realty

Welltower

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Welltower are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite quite weak essential indicators, Welltower disclosed solid returns over the last few months and may actually be approaching a breakup point.

Universal Health Realty

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Health Realty are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical indicators, Universal Health unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Welltower and Universal Health

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

The idea behind Welltower and Universal Health Realty 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.