Correlation Between Universal Health and Community Healthcare

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

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

Diversification Opportunities for Universal Health and Community Healthcare

-0.39

Correlation Coefficient

Universal Health  Community Healthcare

Very good diversification

The 3 months correlation between Universal and Community is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Universal Health Realty and Community Healthcare Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Community Healthcare 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 Realty are associated (or correlated) with Community Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Community Healthcare has no effect on the direction of Universal Health i.e., Universal Health and Community Healthcare go up and down completely randomly.

Pair Corralation between Universal Health and Community Healthcare

Considering the 90-day investment horizon Universal Health Realty is expected to under-perform the Community Healthcare. But the stock apears to be less risky and, when comparing its historical volatility, Universal Health Realty is 1.72 times less risky than Community Healthcare. The stock trades about -0.03 of its potential returns per unit of risk. The Community Healthcare Trust is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,784  in Community Healthcare Trust on September 3, 2024 and sell it today you would earn a total of  106.00  from holding Community Healthcare Trust or generate 5.94% return on investment over 90 days.

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

Universal Health Realty  vs.  Community Healthcare Trust

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. In spite of comparatively stable technical indicators, Universal Health is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Community Healthcare

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Community Healthcare Trust are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady fundamental indicators, Community Healthcare may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Universal Health and Community Healthcare

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

The idea behind Universal Health Realty and Community Healthcare Trust 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.