Correlation Between China Water and United Utilities
Can any of the company-specific risk be diversified away by investing in both China Water 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 China Water and United Utilities into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Water Affairs and United Utilities Group, you can compare the effects of market volatilities on China Water 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 China Water with a short position of United Utilities. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Water and United Utilities.
Diversification Opportunities for China Water and United Utilities
0.11 | Correlation Coefficient |
Average diversification
The 3 months correlation between China and United is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding China Water Affairs and United Utilities Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Utilities and China Water 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 China Water Affairs 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 China Water i.e., China Water and United Utilities go up and down completely randomly.
Pair Corralation between China Water and United Utilities
Assuming the 90 days trading horizon China Water Affairs is expected to generate 2.64 times more return on investment than United Utilities. However, China Water is 2.64 times more volatile than United Utilities Group. It trades about 0.04 of its potential returns per unit of risk. United Utilities Group is currently generating about 0.08 per unit of risk. If you would invest 48.00 in China Water Affairs on September 3, 2024 and sell it today you would earn a total of 5.00 from holding China Water Affairs or generate 10.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
China Water Affairs vs. United Utilities Group
Performance |
| Timeline |
| China Water Affairs |
| United Utilities |
China Water and United Utilities Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Water and United Utilities
The main advantage of trading using opposite China Water and United Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Water 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.| China Water vs. HANOVER INSURANCE | China Water vs. Big 5 Sporting | China Water vs. Safety Insurance Group | China Water vs. Ping An Insurance |
| United Utilities vs. Guangdong Investment Limited | United Utilities vs. Superior Plus Corp | United Utilities vs. NMI Holdings | United Utilities vs. Origin Agritech |
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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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