Correlation Between Universal Health and Sparebank

Can any of the company-specific risk be diversified away by investing in both Universal Health and Sparebank 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 Sparebank 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 Sparebank 1 SR, you can compare the effects of market volatilities on Universal Health and Sparebank 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 Sparebank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Universal Health and Sparebank.

Diversification Opportunities for Universal Health and Sparebank

-0.6

Correlation Coefficient

Universal Health  Sparebank

Excellent diversification

The 3 months correlation between Universal and Sparebank is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Universal Health Services and Sparebank 1 SR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sparebank 1 SR 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 Sparebank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sparebank 1 SR has no effect on the direction of Universal Health i.e., Universal Health and Sparebank go up and down completely randomly.

Pair Corralation between Universal Health and Sparebank

Assuming the 90 days trading horizon Universal Health is expected to generate 21.4 times less return on investment than Sparebank. In addition to that, Universal Health is 1.75 times more volatile than Sparebank 1 SR. It trades about 0.0 of its total potential returns per unit of risk. Sparebank 1 SR is currently generating about 0.08 per unit of volatility. If you would invest  12,940  in Sparebank 1 SR on September 26, 2024 and sell it today you would earn a total of  1,500  from holding Sparebank 1 SR or generate 11.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	97.66%
Values	Daily Returns

Universal Health Services  vs.  Sparebank 1 SR

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.

Sparebank 1 SR

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sparebank 1 SR are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Sparebank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Universal Health and Sparebank

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

The idea behind Universal Health Services and Sparebank 1 SR 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.