Correlation Between United Utilities and American Water
Can any of the company-specific risk be diversified away by investing in both United Utilities and American Water 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 American Water 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 American Water Works, you can compare the effects of market volatilities on United Utilities and American Water 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 American Water. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Utilities and American Water.
Diversification Opportunities for United Utilities and American Water
0.44 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between United and American is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding United Utilities Group and American Water Works in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Water Works 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 American Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Water Works has no effect on the direction of United Utilities i.e., United Utilities and American Water go up and down completely randomly.
Pair Corralation between United Utilities and American Water
Assuming the 90 days trading horizon United Utilities Group is expected to under-perform the American Water. In addition to that, United Utilities is 1.25 times more volatile than American Water Works. It trades about -0.34 of its total potential returns per unit of risk. American Water Works is currently generating about -0.11 per unit of volatility. If you would invest 12,305 in American Water Works on October 15, 2024 and sell it today you would lose (365.00) from holding American Water Works or give up 2.97% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
United Utilities Group vs. American Water Works
Performance |
| Timeline |
| United Utilities |
| American Water Works |
United Utilities and American Water Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with United Utilities and American Water
The main advantage of trading using opposite United Utilities and American Water positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Utilities position performs unexpectedly, American Water 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 American Water will offset losses from the drop in American Water's long position.| United Utilities vs. Dentsply Sirona | United Utilities vs. TOMBADOR IRON LTD | United Utilities vs. STEEL DYNAMICS | United Utilities vs. DENTSPLY SIRONA |
| American Water vs. Aqua America | American Water vs. United Utilities Group | American Water vs. Companhia de Saneamento | American Water vs. Gelsenwasser AG |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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