Correlation Between UnitedHealth Group and Automatic Data

Can any of the company-specific risk be diversified away by investing in both UnitedHealth Group and Automatic Data 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 Automatic Data 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 Automatic Data Processing, you can compare the effects of market volatilities on UnitedHealth Group and Automatic Data 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 Automatic Data. Check out your portfolio center. Please also check ongoing floating volatility patterns of UnitedHealth Group and Automatic Data.

Diversification Opportunities for UnitedHealth Group and Automatic Data

0.39

Correlation Coefficient

UnitedHealth Group  Automatic Data

Weak diversification

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

Pair Corralation between UnitedHealth Group and Automatic Data

Assuming the 90 days trading horizon UnitedHealth Group is expected to generate 181.07 times less return on investment than Automatic Data. In addition to that, UnitedHealth Group is 1.77 times more volatile than Automatic Data Processing. It trades about 0.0 of its total potential returns per unit of risk. Automatic Data Processing is currently generating about 0.18 per unit of volatility. If you would invest  6,426  in Automatic Data Processing on September 24, 2024 and sell it today you would earn a total of  1,029  from holding Automatic Data Processing or generate 16.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.83%
Values	Daily Returns

UnitedHealth Group Incorporate  vs.  Automatic Data Processing

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. Despite somewhat strong technical indicators, UnitedHealth Group is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Automatic Data Processing

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Automatic Data Processing are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Automatic Data sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with UnitedHealth Group and Automatic Data

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

The idea behind UnitedHealth Group Incorporated and Automatic Data Processing 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.