Correlation Between United Utilities and TransAlta Corp
Can any of the company-specific risk be diversified away by investing in both United Utilities and TransAlta Corp 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 TransAlta Corp 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 TransAlta Corp, you can compare the effects of market volatilities on United Utilities and TransAlta Corp 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 TransAlta Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Utilities and TransAlta Corp.
Diversification Opportunities for United Utilities and TransAlta Corp
0.26 | Correlation Coefficient |
Modest diversification
The 3 months correlation between United and TransAlta is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding United Utilities Group and TransAlta Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TransAlta Corp 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 TransAlta Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TransAlta Corp has no effect on the direction of United Utilities i.e., United Utilities and TransAlta Corp go up and down completely randomly.
Pair Corralation between United Utilities and TransAlta Corp
Assuming the 90 days horizon United Utilities is expected to generate 1.49 times less return on investment than TransAlta Corp. But when comparing it to its historical volatility, United Utilities Group is 2.01 times less risky than TransAlta Corp. It trades about 0.14 of its potential returns per unit of risk. TransAlta Corp is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 1,021 in TransAlta Corp on August 28, 2024 and sell it today you would earn a total of 58.00 from holding TransAlta Corp or generate 5.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
United Utilities Group vs. TransAlta Corp
Performance |
| Timeline |
| United Utilities |
| TransAlta Corp |
United Utilities and TransAlta Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with United Utilities and TransAlta Corp
The main advantage of trading using opposite United Utilities and TransAlta Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Utilities position performs unexpectedly, TransAlta Corp 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 TransAlta Corp will offset losses from the drop in TransAlta Corp's long position.| United Utilities vs. American Water Works | United Utilities vs. Middlesex Water | United Utilities vs. SJW Group Common | United Utilities vs. California Water Service |
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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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.
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