Correlation Between Basic Materials and UnitedHealth Group

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

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

Diversification Opportunities for Basic Materials and UnitedHealth Group

-0.53

Correlation Coefficient

Basic Materials  UnitedHealth Group

Excellent diversification

The 3 months correlation between Basic and UnitedHealth is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials and UnitedHealth Group Incorporate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UnitedHealth Group and Basic Materials 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 Basic Materials 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 Basic Materials i.e., Basic Materials and UnitedHealth Group go up and down completely randomly.

Pair Corralation between Basic Materials and UnitedHealth Group

Assuming the 90 days trading horizon Basic Materials is expected to generate 1.56 times less return on investment than UnitedHealth Group. But when comparing it to its historical volatility, Basic Materials is 1.27 times less risky than UnitedHealth Group. It trades about 0.01 of its potential returns per unit of risk. UnitedHealth Group Incorporated is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  3,389  in UnitedHealth Group Incorporated on February 5, 2024 and sell it today you would earn a total of  138.00  from holding UnitedHealth Group Incorporated or generate 4.07% return on investment over 90 days.

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

Basic Materials  vs.  UnitedHealth Group Incorporate

Pair Trading with Basic Materials and UnitedHealth Group

The main advantage of trading using opposite Basic Materials and UnitedHealth Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Basic Materials 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 Basic Materials 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.