Correlation Between North American and United Utilities
Can any of the company-specific risk be diversified away by investing in both North American 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 North American and United Utilities into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between North American Construction and United Utilities Group, you can compare the effects of market volatilities on North American 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 North American with a short position of United Utilities. Check out your portfolio center. Please also check ongoing floating volatility patterns of North American and United Utilities.
Diversification Opportunities for North American and United Utilities
-0.44 | Correlation Coefficient |
Very good diversification
The 3 months correlation between North and United is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction and United Utilities Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Utilities and North American 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 North American Construction 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 North American i.e., North American and United Utilities go up and down completely randomly.
Pair Corralation between North American and United Utilities
Assuming the 90 days horizon North American Construction is expected to under-perform the United Utilities. But the stock apears to be less risky and, when comparing its historical volatility, North American Construction is 1.11 times less risky than United Utilities. The stock trades about -0.28 of its potential returns per unit of risk. The United Utilities Group is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest 1,240 in United Utilities Group on November 8, 2024 and sell it today you would lose (40.00) from holding United Utilities Group or give up 3.23% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
North American Construction vs. United Utilities Group
Performance |
| Timeline |
| North American Const |
| United Utilities |
North American and United Utilities Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with North American and United Utilities
The main advantage of trading using opposite North American and United Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if North American 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.| North American vs. The Hanover Insurance | North American vs. Boyd Gaming | North American vs. Japan Post Insurance | North American vs. UNIQA INSURANCE GR |
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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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.
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