Correlation Between UnitedHealth Group and Cisco Systems

Can any of the company-specific risk be diversified away by investing in both UnitedHealth Group and Cisco Systems 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 UnitedHealth Group and Cisco Systems into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between UnitedHealth Group Incorporated and Cisco Systems, you can compare the effects of market volatilities on UnitedHealth Group and Cisco Systems 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 UnitedHealth Group with a short position of Cisco Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of UnitedHealth Group and Cisco Systems.

Diversification Opportunities for UnitedHealth Group and Cisco Systems

0.16

Correlation Coefficient

UnitedHealth Group  Cisco Systems

Average diversification

The 3 months correlation between UnitedHealth and Cisco is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding UnitedHealth Group Incorporate and Cisco Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cisco Systems and UnitedHealth Group 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 UnitedHealth Group Incorporated are associated (or correlated) with Cisco Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cisco Systems has no effect on the direction of UnitedHealth Group i.e., UnitedHealth Group and Cisco Systems go up and down completely randomly.

Pair Corralation between UnitedHealth Group and Cisco Systems

Assuming the 90 days trading horizon UnitedHealth Group Incorporated is expected to under-perform the Cisco Systems. In addition to that, UnitedHealth Group is 1.66 times more volatile than Cisco Systems. It trades about -0.06 of its total potential returns per unit of risk. Cisco Systems is currently generating about 0.18 per unit of volatility. If you would invest  103,200  in Cisco Systems on September 30, 2024 and sell it today you would earn a total of  16,800  from holding Cisco Systems or generate 16.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

UnitedHealth Group Incorporate  vs.  Cisco Systems

UnitedHealth Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days UnitedHealth Group Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Cisco Systems

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Cisco Systems showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with UnitedHealth Group and Cisco Systems

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

The idea behind UnitedHealth Group Incorporated and Cisco Systems 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.