Correlation Between CarsalesCom and Universal Health

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

By analyzing existing cross correlation between CarsalesCom and Universal Health Services, you can compare the effects of market volatilities on CarsalesCom and Universal Health 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 CarsalesCom with a short position of Universal Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of CarsalesCom and Universal Health.

Diversification Opportunities for CarsalesCom and Universal Health

-0.56

Correlation Coefficient

CarsalesCom  Universal Health

Excellent diversification

The 3 months correlation between CarsalesCom and Universal is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding CarsalesCom and Universal Health Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Health Services and CarsalesCom 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 CarsalesCom are associated (or correlated) with Universal Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Health Services has no effect on the direction of CarsalesCom i.e., CarsalesCom and Universal Health go up and down completely randomly.

Pair Corralation between CarsalesCom and Universal Health

Assuming the 90 days horizon CarsalesCom is expected to generate 0.6 times more return on investment than Universal Health. However, CarsalesCom is 1.66 times less risky than Universal Health. It trades about 0.08 of its potential returns per unit of risk. Universal Health Services is currently generating about -0.07 per unit of risk. If you would invest  2,180  in CarsalesCom on September 14, 2024 and sell it today you would earn a total of  160.00  from holding CarsalesCom or generate 7.34% return on investment over 90 days.

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

CarsalesCom  vs.  Universal Health Services

CarsalesCom

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CarsalesCom are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CarsalesCom may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Universal Health Services

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Universal Health Services has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with CarsalesCom and Universal Health

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

The idea behind CarsalesCom and Universal Health Services 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 Anywhere module to track or share privately all of your investments from the convenience of any device.