Correlation Between Cal Maine and United Utilities
Can any of the company-specific risk be diversified away by investing in both Cal Maine 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 Cal Maine and United Utilities into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cal Maine Foods and United Utilities Group, you can compare the effects of market volatilities on Cal Maine 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 Cal Maine with a short position of United Utilities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cal Maine and United Utilities.
Diversification Opportunities for Cal Maine and United Utilities
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Cal and United is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Cal Maine 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 Cal Maine 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 Cal Maine 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 Cal Maine i.e., Cal Maine and United Utilities go up and down completely randomly.
Pair Corralation between Cal Maine and United Utilities
Assuming the 90 days trading horizon Cal Maine Foods is expected to generate 1.71 times more return on investment than United Utilities. However, Cal Maine is 1.71 times more volatile than United Utilities Group. It trades about 0.26 of its potential returns per unit of risk. United Utilities Group is currently generating about 0.02 per unit of risk. If you would invest 6,638 in Cal Maine Foods on September 29, 2024 and sell it today you would earn a total of 3,086 from holding Cal Maine Foods or generate 46.49% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cal Maine Foods vs. United Utilities Group
Performance |
| Timeline |
| Cal Maine Foods |
| United Utilities |
Cal Maine and United Utilities Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cal Maine and United Utilities
The main advantage of trading using opposite Cal Maine and United Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cal Maine 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.The idea behind Cal Maine Foods and United Utilities Group 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.| United Utilities vs. Samsung Electronics Co | United Utilities vs. CarsalesCom | United Utilities vs. Electronic Arts | United Utilities vs. Lendlease Group |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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