Correlation Between UnitedHealth Group and True North

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

By analyzing existing cross correlation between UnitedHealth Group CDR and True North Gems, you can compare the effects of market volatilities on UnitedHealth Group and True North 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 True North. Check out your portfolio center. Please also check ongoing floating volatility patterns of UnitedHealth Group and True North.

Diversification Opportunities for UnitedHealth Group and True North

-0.4

Correlation Coefficient

UnitedHealth Group  True North

Very good diversification

The 3 months correlation between UnitedHealth and True is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding UnitedHealth Group CDR and True North Gems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on True North Gems 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 CDR are associated (or correlated) with True North. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of True North Gems has no effect on the direction of UnitedHealth Group i.e., UnitedHealth Group and True North go up and down completely randomly.

Pair Corralation between UnitedHealth Group and True North

Assuming the 90 days trading horizon UnitedHealth Group is expected to generate 46.14 times less return on investment than True North. But when comparing it to its historical volatility, UnitedHealth Group CDR is 9.95 times less risky than True North. It trades about 0.02 of its potential returns per unit of risk. True North Gems is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  3.00  in True North Gems on September 1, 2024 and sell it today you would earn a total of  2.00  from holding True North Gems or generate 66.67% return on investment over 90 days.

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

UnitedHealth Group CDR  vs.  True North Gems

UnitedHealth Group CDR

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in UnitedHealth Group CDR are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, UnitedHealth Group is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

True North Gems

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in True North Gems are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, True North showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with UnitedHealth Group and True North

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

The idea behind UnitedHealth Group CDR and True North Gems 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.