Correlation Between Tenet Healthcare and Universal Health

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

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

Diversification Opportunities for Tenet Healthcare and Universal Health

0.56

Correlation Coefficient

Tenet Healthcare  Universal Health

Very weak diversification

The 3 months correlation between Tenet and Universal is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Tenet Healthcare and Universal Health Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Health Services and Tenet Healthcare 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 Tenet Healthcare 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 Services has no effect on the direction of Tenet Healthcare i.e., Tenet Healthcare and Universal Health go up and down completely randomly.

Pair Corralation between Tenet Healthcare and Universal Health

Considering the 90-day investment horizon Tenet Healthcare is expected to generate 1.52 times more return on investment than Universal Health. However, Tenet Healthcare is 1.52 times more volatile than Universal Health Services. It trades about -0.05 of its potential returns per unit of risk. Universal Health Services is currently generating about -0.1 per unit of risk. If you would invest  16,165  in Tenet Healthcare on August 31, 2024 and sell it today you would lose (1,897) from holding Tenet Healthcare or give up 11.74% of portfolio value over 90 days.

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

Tenet Healthcare  vs.  Universal Health Services

Tenet Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tenet Healthcare has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

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 fragile performance in the last few months, the Stock's technical indicators remain comparatively stable which may send shares a bit higher in December 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Tenet Healthcare and Universal Health

The main advantage of trading using opposite Tenet Healthcare and Universal Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tenet Healthcare 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 Tenet Healthcare and Universal Health Services 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.