Correlation Between United Utilities and Dow Jones
Can any of the company-specific risk be diversified away by investing in both United Utilities and Dow Jones 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 Dow Jones 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 Dow Jones Industrial, you can compare the effects of market volatilities on United Utilities and Dow Jones 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 Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Utilities and Dow Jones.
Diversification Opportunities for United Utilities and Dow Jones
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between United and Dow is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding United Utilities Group and Dow Jones Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Jones Industrial 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 Dow Jones. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Jones Industrial has no effect on the direction of United Utilities i.e., United Utilities and Dow Jones go up and down completely randomly.
Pair Corralation between United Utilities and Dow Jones
Assuming the 90 days horizon United Utilities is expected to generate 3.27 times less return on investment than Dow Jones. In addition to that, United Utilities is 1.63 times more volatile than Dow Jones Industrial. It trades about 0.03 of its total potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.16 per unit of volatility. If you would invest 3,857,103 in Dow Jones Industrial on August 31, 2024 and sell it today you would earn a total of 633,962 from holding Dow Jones Industrial or generate 16.44% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.21% |
| Values | Daily Returns |
United Utilities Group vs. Dow Jones Industrial
Performance |
| Timeline |
United Utilities and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
United Utilities Group
Pair trading matchups for United Utilities
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with United Utilities and Dow Jones
The main advantage of trading using opposite United Utilities and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Utilities position performs unexpectedly, Dow Jones 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 Dow Jones will offset losses from the drop in Dow Jones' long position.| United Utilities vs. Essential Utilities | United Utilities vs. Anhui Conch Cement | United Utilities vs. Endesa SA ADR | United Utilities vs. HUMANA INC |
| Dow Jones vs. Aerofoam Metals | Dow Jones vs. ACG Metals Limited | Dow Jones vs. China Clean Energy | Dow Jones vs. Fast Retailing Co |
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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