Correlation Between UnitedHealth Group and Encompass Health

Can any of the company-specific risk be diversified away by investing in both UnitedHealth Group and Encompass 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 UnitedHealth Group and Encompass Health 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 Encompass Health Corp, you can compare the effects of market volatilities on UnitedHealth Group and Encompass 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 UnitedHealth Group with a short position of Encompass Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of UnitedHealth Group and Encompass Health.

Diversification Opportunities for UnitedHealth Group and Encompass Health

0.8

Correlation Coefficient

UnitedHealth Group  Encompass Health

Very poor diversification

The 3 months correlation between UnitedHealth and Encompass is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding UnitedHealth Group Incorporate and Encompass Health Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Encompass Health Corp 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 Encompass Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Encompass Health Corp has no effect on the direction of UnitedHealth Group i.e., UnitedHealth Group and Encompass Health go up and down completely randomly.

Pair Corralation between UnitedHealth Group and Encompass Health

Considering the 90-day investment horizon UnitedHealth Group Incorporated is expected to under-perform the Encompass Health. But the stock apears to be less risky and, when comparing its historical volatility, UnitedHealth Group Incorporated is 1.07 times less risky than Encompass Health. The stock trades about -0.07 of its potential returns per unit of risk. The Encompass Health Corp is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  9,148  in Encompass Health Corp on June 24, 2024 and sell it today you would earn a total of  117.00  from holding Encompass Health Corp or generate 1.28% return on investment over 90 days.

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

UnitedHealth Group Incorporate  vs.  Encompass Health Corp

UnitedHealth Group

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in UnitedHealth Group Incorporated are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent basic indicators, UnitedHealth Group demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Encompass Health Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Encompass Health Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical indicators, Encompass Health may actually be approaching a critical reversion point that can send shares even higher in October 2024.

Pair Trading with UnitedHealth Group and Encompass Health

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

The idea behind UnitedHealth Group Incorporated and Encompass Health Corp 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.

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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.