Correlation Between Microsoft and Universal Health
Can any of the company-specific risk be diversified away by investing in both Microsoft 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 Microsoft and Universal Health into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Universal Health Services, you can compare the effects of market volatilities on Microsoft 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 Microsoft with a short position of Universal Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Universal Health.
Diversification Opportunities for Microsoft and Universal Health
0.18 | Correlation Coefficient |
Average diversification
The 3 months correlation between Microsoft and Universal is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft 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 Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and Universal Health go up and down completely randomly.
Pair Corralation between Microsoft and Universal Health
Given the investment horizon of 90 days Microsoft is expected to generate 0.85 times more return on investment than Universal Health. However, Microsoft is 1.17 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 0.06 per unit of risk. If you would invest 24,616 in Microsoft on August 24, 2024 and sell it today you would earn a total of 17,084 from holding Microsoft or generate 69.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Universal Health Services
Performance |
| Timeline |
| Microsoft |
| Universal Health Services |
Microsoft and Universal Health Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Universal Health
The main advantage of trading using opposite Microsoft and Universal Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Universal Health vs. The Ensign Group | Universal Health vs. Addus HomeCare | Universal Health vs. Encompass Health Corp | Universal Health vs. Surgery Partners |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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