Correlation Between Visa and UnitedHealth Group

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

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

Diversification Opportunities for Visa and UnitedHealth Group

0.38

Correlation Coefficient

Visa  UnitedHealth Group

Weak diversification

The 3 months correlation between Visa and UnitedHealth is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and UnitedHealth Group Incorporate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UnitedHealth Group and Visa 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 Visa Class A are associated (or correlated) with UnitedHealth Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UnitedHealth Group has no effect on the direction of Visa i.e., Visa and UnitedHealth Group go up and down completely randomly.

Pair Corralation between Visa and UnitedHealth Group

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.75 times more return on investment than UnitedHealth Group. However, Visa Class A is 1.33 times less risky than UnitedHealth Group. It trades about 0.17 of its potential returns per unit of risk. UnitedHealth Group Incorporated is currently generating about 0.04 per unit of risk. If you would invest  27,584  in Visa Class A on August 30, 2024 and sell it today you would earn a total of  3,886  from holding Visa Class A or generate 14.09% return on investment over 90 days.

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

Visa Class A  vs.  UnitedHealth Group Incorporate

Visa Class A

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Visa showed solid returns over the last few months and may actually be approaching a breakup point.

UnitedHealth Group

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in UnitedHealth Group Incorporated are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, UnitedHealth Group is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Visa and UnitedHealth Group

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

The idea behind Visa Class A and UnitedHealth Group Incorporated 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.