Correlation Between Medical Properties and Universal Health

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

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

Diversification Opportunities for Medical Properties and Universal Health

0.61

Correlation Coefficient

Medical Properties  Universal Health

Poor diversification

The 3 months correlation between Medical and Universal is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Medical Properties Trust 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 Medical Properties 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 Medical Properties Trust 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 Medical Properties i.e., Medical Properties and Universal Health go up and down completely randomly.

Pair Corralation between Medical Properties and Universal Health

Assuming the 90 days horizon Medical Properties Trust is expected to under-perform the Universal Health. In addition to that, Medical Properties is 2.35 times more volatile than Universal Health Realty. It trades about -0.07 of its total potential returns per unit of risk. Universal Health Realty is currently generating about -0.02 per unit of volatility. If you would invest  3,985  in Universal Health Realty on September 12, 2024 and sell it today you would lose (123.00) from holding Universal Health Realty or give up 3.09% of portfolio value over 90 days.

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

Medical Properties Trust  vs.  Universal Health Realty

Medical Properties Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Medical Properties Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Universal Health Realty

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Universal Health Realty has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Universal Health is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Medical Properties and Universal Health

The main advantage of trading using opposite Medical Properties and Universal Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Medical Properties 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 Medical Properties Trust 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.

Check out your portfolio center.

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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.