Correlation Between Associated British and United Utilities
Can any of the company-specific risk be diversified away by investing in both Associated British and United Utilities 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 Associated British and United Utilities into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Associated British Foods and United Utilities Group, you can compare the effects of market volatilities on Associated British and United Utilities 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 Associated British with a short position of United Utilities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Associated British and United Utilities.
Diversification Opportunities for Associated British and United Utilities
-0.53 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Associated and United is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Associated British Foods and United Utilities Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Utilities and Associated British 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 Associated British Foods are associated (or correlated) with United Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Utilities has no effect on the direction of Associated British i.e., Associated British and United Utilities go up and down completely randomly.
Pair Corralation between Associated British and United Utilities
Assuming the 90 days trading horizon Associated British Foods is expected to under-perform the United Utilities. But the stock apears to be less risky and, when comparing its historical volatility, Associated British Foods is 1.18 times less risky than United Utilities. The stock trades about -0.09 of its potential returns per unit of risk. The United Utilities Group is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 97,337 in United Utilities Group on September 2, 2024 and sell it today you would earn a total of 14,613 from holding United Utilities Group or generate 15.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Associated British Foods vs. United Utilities Group
Performance |
| Timeline |
| Associated British Foods |
| United Utilities |
Associated British and United Utilities Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Associated British and United Utilities
The main advantage of trading using opposite Associated British and United Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Associated British position performs unexpectedly, United Utilities 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 United Utilities will offset losses from the drop in United Utilities' long position.| Associated British vs. Vitec Software Group | Associated British vs. Kinnevik Investment AB | Associated British vs. Kaufman Et Broad | Associated British vs. Tatton Asset Management |
| United Utilities vs. Monks Investment Trust | United Utilities vs. Smithson Investment Trust | United Utilities vs. Ebro Foods | United Utilities vs. Federal Realty 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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