Correlation Between SEALED AIR and Universal Health

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

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

Diversification Opportunities for SEALED AIR and Universal Health

-0.39

Correlation Coefficient

SEALED AIR  Universal Health

Very good diversification

The 3 months correlation between SEALED and Universal is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding SEALED AIR 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 SEALED AIR 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 SEALED AIR 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 SEALED AIR i.e., SEALED AIR and Universal Health go up and down completely randomly.

Pair Corralation between SEALED AIR and Universal Health

Assuming the 90 days trading horizon SEALED AIR is expected to generate 2.26 times less return on investment than Universal Health. But when comparing it to its historical volatility, SEALED AIR is 1.11 times less risky than Universal Health. It trades about 0.12 of its potential returns per unit of risk. Universal Health Realty is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  3,594  in Universal Health Realty on September 4, 2024 and sell it today you would earn a total of  364.00  from holding Universal Health Realty or generate 10.13% return on investment over 90 days.

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

SEALED AIR   vs.  Universal Health Realty

SEALED AIR

Risk-Adjusted Performance

8 of 100

OK

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

Universal Health Realty

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Health Realty are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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 SEALED AIR and Universal Health

The main advantage of trading using opposite SEALED AIR and Universal Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SEALED AIR 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 SEALED AIR 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.