Correlation Between Applied Materials and UnitedHealth Group

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

Diversification Opportunities for Applied Materials and UnitedHealth Group

-0.42

Correlation Coefficient

Applied Materials  UnitedHealth Group

Very good diversification

The 3 months correlation between Applied and UnitedHealth is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Applied 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 Applied 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 Applied 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 Applied Materials i.e., Applied Materials and UnitedHealth Group go up and down completely randomly.

Pair Corralation between Applied Materials and UnitedHealth Group

Assuming the 90 days trading horizon Applied Materials is expected to generate 1.07 times more return on investment than UnitedHealth Group. However, Applied Materials is 1.07 times more volatile than UnitedHealth Group Incorporated. It trades about 0.07 of its potential returns per unit of risk. UnitedHealth Group Incorporated is currently generating about 0.08 per unit of risk. If you would invest  336,700  in Applied Materials on February 14, 2024 and sell it today you would earn a total of  17,779  from holding Applied Materials or generate 5.28% return on investment over 90 days.

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

Applied Materials  vs.  UnitedHealth Group Incorporate

Applied Materials

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Applied Materials are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Applied Materials showed solid returns over the last few months and may actually be approaching a breakup point.

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. In spite of fairly strong technical indicators, UnitedHealth Group is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Applied Materials and UnitedHealth Group

The main advantage of trading using opposite Applied Materials and UnitedHealth Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied 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 Applied 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.

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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.