Correlation Between United Utilities and MGP Ingredients
Can any of the company-specific risk be diversified away by investing in both United Utilities and MGP Ingredients 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 MGP Ingredients 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 MGP Ingredients, you can compare the effects of market volatilities on United Utilities and MGP Ingredients 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 MGP Ingredients. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Utilities and MGP Ingredients.
Diversification Opportunities for United Utilities and MGP Ingredients
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between United and MGP is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding United Utilities Group and MGP Ingredients in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MGP Ingredients 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 MGP Ingredients. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MGP Ingredients has no effect on the direction of United Utilities i.e., United Utilities and MGP Ingredients go up and down completely randomly.
Pair Corralation between United Utilities and MGP Ingredients
Assuming the 90 days trading horizon United Utilities Group is expected to generate 0.68 times more return on investment than MGP Ingredients. However, United Utilities Group is 1.48 times less risky than MGP Ingredients. It trades about 0.01 of its potential returns per unit of risk. MGP Ingredients is currently generating about -0.07 per unit of risk. If you would invest 1,071 in United Utilities Group on December 12, 2024 and sell it today you would earn a total of 59.00 from holding United Utilities Group or generate 5.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
United Utilities Group vs. MGP Ingredients
Performance |
| Timeline |
| United Utilities |
| MGP Ingredients |
United Utilities and MGP Ingredients Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with United Utilities and MGP Ingredients
The main advantage of trading using opposite United Utilities and MGP Ingredients positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Utilities position performs unexpectedly, MGP Ingredients 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 MGP Ingredients will offset losses from the drop in MGP Ingredients' long position.| United Utilities vs. Erste Group Bank | ||
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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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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