Correlation Between United Utilities and Fair Oaks
Can any of the company-specific risk be diversified away by investing in both United Utilities and Fair Oaks 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 Fair Oaks 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 Fair Oaks Income, you can compare the effects of market volatilities on United Utilities and Fair Oaks 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 Fair Oaks. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Utilities and Fair Oaks.
Diversification Opportunities for United Utilities and Fair Oaks
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between United and Fair is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding United Utilities Group and Fair Oaks Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fair Oaks Income 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 Fair Oaks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fair Oaks Income has no effect on the direction of United Utilities i.e., United Utilities and Fair Oaks go up and down completely randomly.
Pair Corralation between United Utilities and Fair Oaks
Assuming the 90 days trading horizon United Utilities Group is expected to generate 3.3 times more return on investment than Fair Oaks. However, United Utilities is 3.3 times more volatile than Fair Oaks Income. It trades about 0.08 of its potential returns per unit of risk. Fair Oaks Income is currently generating about 0.13 per unit of risk. If you would invest 97,337 in United Utilities Group on September 2, 2024 and sell it today you would earn a total of 14,613 from holding United Utilities Group or generate 15.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.22% |
| Values | Daily Returns |
United Utilities Group vs. Fair Oaks Income
Performance |
| Timeline |
| United Utilities |
| Fair Oaks Income |
United Utilities and Fair Oaks Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with United Utilities and Fair Oaks
The main advantage of trading using opposite United Utilities and Fair Oaks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Utilities position performs unexpectedly, Fair Oaks 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 Fair Oaks will offset losses from the drop in Fair Oaks' 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 |
| Fair Oaks vs. Toyota Motor Corp | Fair Oaks vs. OTP Bank Nyrt | Fair Oaks vs. Las Vegas Sands | Fair Oaks vs. Yum Brands |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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