Correlation Between Universal Health and Acadia Healthcare

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

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

Diversification Opportunities for Universal Health and Acadia Healthcare

0.63

Correlation Coefficient

Universal Health  Acadia Healthcare

Poor diversification

The 3 months correlation between Universal and Acadia is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Universal Health Services and Acadia Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Acadia Healthcare and Universal 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 Universal Health Services are associated (or correlated) with Acadia Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Acadia Healthcare has no effect on the direction of Universal Health i.e., Universal Health and Acadia Healthcare go up and down completely randomly.

Pair Corralation between Universal Health and Acadia Healthcare

Assuming the 90 days horizon Universal Health is expected to generate 17.34 times less return on investment than Acadia Healthcare. But when comparing it to its historical volatility, Universal Health Services is 1.42 times less risky than Acadia Healthcare. It trades about 0.0 of its potential returns per unit of risk. Acadia Healthcare is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,820  in Acadia Healthcare on April 24, 2025 and sell it today you would earn a total of  70.00  from holding Acadia Healthcare or generate 3.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Universal Health Services  vs.  Acadia Healthcare

Universal Health Services

Risk-Adjusted Performance

Weak

Over the last 90 days Universal Health Services has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Universal Health is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Acadia Healthcare

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Acadia Healthcare are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Acadia Healthcare may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Universal Health and Acadia Healthcare

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

The idea behind Universal Health Services and Acadia Healthcare 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.