Correlation Between Elevance Health and UnitedHealth Group

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

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

Diversification Opportunities for Elevance Health and UnitedHealth Group

0.02

Correlation Coefficient

Elevance Health  UnitedHealth Group

Significant diversification

The 3 months correlation between Elevance and UnitedHealth is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Elevance Health and UnitedHealth Group Incorporate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UnitedHealth Group and Elevance Health 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 Elevance Health 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 Elevance Health i.e., Elevance Health and UnitedHealth Group go up and down completely randomly.

Pair Corralation between Elevance Health and UnitedHealth Group

Considering the 90-day investment horizon Elevance Health is expected to generate 2.07 times less return on investment than UnitedHealth Group. But when comparing it to its historical volatility, Elevance Health is 1.73 times less risky than UnitedHealth Group. It trades about 0.18 of its potential returns per unit of risk. UnitedHealth Group Incorporated is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  45,574  in UnitedHealth Group Incorporated on February 5, 2024 and sell it today you would earn a total of  3,671  from holding UnitedHealth Group Incorporated or generate 8.06% return on investment over 90 days.

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

Elevance Health  vs.  UnitedHealth Group Incorporate

Elevance Health

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Elevance Health are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating essential indicators, Elevance Health may actually be approaching a critical reversion point that can send shares even higher in June 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 Elevance Health and UnitedHealth Group

The main advantage of trading using opposite Elevance Health and UnitedHealth Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Elevance Health 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 Elevance Health 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .