Correlation Between Universal Health and Norwegian Air

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

Diversification Opportunities for Universal Health and Norwegian Air

0.55

Correlation Coefficient

Universal Health  Norwegian Air

Very weak diversification

The 3 months correlation between Universal and Norwegian is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Universal Health Services and Norwegian Air Shuttle in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Norwegian Air Shuttle 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 Norwegian Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Norwegian Air Shuttle has no effect on the direction of Universal Health i.e., Universal Health and Norwegian Air go up and down completely randomly.

Pair Corralation between Universal Health and Norwegian Air

Assuming the 90 days trading horizon Universal Health is expected to generate 1.34 times less return on investment than Norwegian Air. But when comparing it to its historical volatility, Universal Health Services is 1.4 times less risky than Norwegian Air. It trades about 0.04 of its potential returns per unit of risk. Norwegian Air Shuttle is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  780.00  in Norwegian Air Shuttle on September 24, 2024 and sell it today you would earn a total of  307.00  from holding Norwegian Air Shuttle or generate 39.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	86.03%
Values	Daily Returns

Universal Health Services  vs.  Norwegian Air Shuttle

Universal Health Services

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. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Norwegian Air Shuttle

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Norwegian Air Shuttle has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Universal Health and Norwegian Air

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

The idea behind Universal Health Services and Norwegian Air Shuttle 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..