Correlation Between United Utilities and Associated British
Can any of the company-specific risk be diversified away by investing in both United Utilities and Associated British 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 United Utilities and Associated British into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between United Utilities Group and Associated British Foods, you can compare the effects of market volatilities on United Utilities and Associated British 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 United Utilities with a short position of Associated British. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Utilities and Associated British.
Diversification Opportunities for United Utilities and Associated British
-0.53 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between United and Associated is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding United Utilities Group and Associated British Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Associated British Foods and United Utilities 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 United Utilities Group are associated (or correlated) with Associated British. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Associated British Foods has no effect on the direction of United Utilities i.e., United Utilities and Associated British go up and down completely randomly.
Pair Corralation between United Utilities and Associated British
Assuming the 90 days trading horizon United Utilities Group is expected to generate 1.15 times more return on investment than Associated British. However, United Utilities is 1.15 times more volatile than Associated British Foods. It trades about 0.32 of its potential returns per unit of risk. Associated British Foods is currently generating about -0.14 per unit of risk. If you would invest 101,826 in United Utilities Group on September 2, 2024 and sell it today you would earn a total of 10,124 from holding United Utilities Group or generate 9.94% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
United Utilities Group vs. Associated British Foods
Performance |
| Timeline |
| United Utilities |
| Associated British Foods |
United Utilities and Associated British Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with United Utilities and Associated British
The main advantage of trading using opposite United Utilities and Associated British positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Utilities position performs unexpectedly, Associated British 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 Associated British will offset losses from the drop in Associated British's long position.| United Utilities vs. Monks Investment Trust | United Utilities vs. Smithson Investment Trust | United Utilities vs. Ebro Foods | United Utilities vs. Federal Realty Investment |
| Associated British vs. Vitec Software Group | Associated British vs. Kinnevik Investment AB | Associated British vs. Kaufman Et Broad | Associated British vs. Tatton Asset Management |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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