Correlation Between Investment and United Utilities
Can any of the company-specific risk be diversified away by investing in both Investment 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 Investment and United Utilities into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Investment and United Utilities Group, you can compare the effects of market volatilities on Investment 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 Investment with a short position of United Utilities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Investment and United Utilities.
Diversification Opportunities for Investment and United Utilities
0.3 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Investment and United is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding The Investment and United Utilities Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Utilities and Investment 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 The Investment 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 Investment i.e., Investment and United Utilities go up and down completely randomly.
Pair Corralation between Investment and United Utilities
Assuming the 90 days trading horizon Investment is expected to generate 2.69 times less return on investment than United Utilities. But when comparing it to its historical volatility, The Investment is 2.54 times less risky than United Utilities. It trades about 0.08 of its potential returns per unit of risk. United Utilities Group is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 96,765 in United Utilities Group on September 3, 2024 and sell it today you would earn a total of 15,185 from holding United Utilities Group or generate 15.69% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
The Investment vs. United Utilities Group
Performance |
| Timeline |
| Investment |
| United Utilities |
Investment and United Utilities Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Investment and United Utilities
The main advantage of trading using opposite Investment and United Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Investment 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.| Investment vs. CAP LEASE AVIATION | Investment vs. Infrastrutture Wireless Italiane | Investment vs. UNIQA Insurance Group | Investment vs. Verizon Communications |
| United Utilities vs. Hyundai Motor | United Utilities vs. Toyota Motor Corp | United Utilities vs. SoftBank Group Corp | United Utilities vs. Halyk Bank of |
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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