Correlation Between Select Medical and UnitedHealth Group

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

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

Diversification Opportunities for Select Medical and UnitedHealth Group

-0.6

Correlation Coefficient

Select Medical  UnitedHealth Group

Excellent diversification

The 3 months correlation between Select and UnitedHealth is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Select Medical Holdings and UnitedHealth Group Incorporate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UnitedHealth Group and Select Medical 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 Select Medical Holdings 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 Select Medical i.e., Select Medical and UnitedHealth Group go up and down completely randomly.

Pair Corralation between Select Medical and UnitedHealth Group

Considering the 90-day investment horizon Select Medical Holdings is expected to under-perform the UnitedHealth Group. But the stock apears to be less risky and, when comparing its historical volatility, Select Medical Holdings is 1.29 times less risky than UnitedHealth Group. The stock trades about -0.09 of its potential returns per unit of risk. The UnitedHealth Group Incorporated is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  49,231  in UnitedHealth Group Incorporated on January 26, 2024 and sell it today you would lose (501.00) from holding UnitedHealth Group Incorporated or give up 1.02% of portfolio value over 90 days.

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

Select Medical Holdings  vs.  UnitedHealth Group Incorporate

Select Medical Holdings

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Select Medical Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile technical and fundamental indicators, Select Medical may actually be approaching a critical reversion point that can send shares even higher in May 2024.

UnitedHealth Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days UnitedHealth Group Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. 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 Select Medical and UnitedHealth Group

The main advantage of trading using opposite Select Medical and UnitedHealth Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Select Medical 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 Select Medical Holdings 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.