Correlation Between Fevertree Drinks and United Utilities

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Can any of the company-specific risk be diversified away by investing in both Fevertree Drinks 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 Fevertree Drinks and United Utilities into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fevertree Drinks PLC and United Utilities Group, you can compare the effects of market volatilities on Fevertree Drinks 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 Fevertree Drinks with a short position of United Utilities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fevertree Drinks and United Utilities.

Diversification Opportunities for Fevertree Drinks and United Utilities

-0.54
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Fevertree and United is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Fevertree Drinks PLC and United Utilities Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Utilities and Fevertree Drinks 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 Fevertree Drinks PLC 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 Fevertree Drinks i.e., Fevertree Drinks and United Utilities go up and down completely randomly.

Pair Corralation between Fevertree Drinks and United Utilities

Assuming the 90 days trading horizon Fevertree Drinks PLC is expected to generate 1.87 times more return on investment than United Utilities. However, Fevertree Drinks is 1.87 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 -0.31 per unit of risk. If you would invest  825.00  in Fevertree Drinks PLC on September 26, 2024 and sell it today you would lose (20.00) from holding Fevertree Drinks PLC or give up 2.42% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Fevertree Drinks PLC  vs.  United Utilities Group

 Performance 
       Timeline  
Fevertree Drinks PLC 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Fevertree Drinks PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.
United Utilities 

Risk-Adjusted Performance

1 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in United Utilities Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, United Utilities is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Fevertree Drinks and United Utilities Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Fevertree Drinks and United Utilities

The main advantage of trading using opposite Fevertree Drinks and United Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fevertree Drinks 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 Fevertree Drinks PLC 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.
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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.

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