Correlation Between UNITED URBAN and National Grid

Can any of the company-specific risk be diversified away by investing in both UNITED URBAN and National Grid 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 URBAN and National Grid into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between UNITED URBAN INV and National Grid PLC, you can compare the effects of market volatilities on UNITED URBAN and National Grid 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 URBAN with a short position of National Grid. Check out your portfolio center. Please also check ongoing floating volatility patterns of UNITED URBAN and National Grid.

Diversification Opportunities for UNITED URBAN and National Grid

0.73

Correlation Coefficient

UNITED URBAN  National Grid

Poor diversification

The 3 months correlation between UNITED and National is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding UNITED URBAN INV and National Grid PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Grid PLC and UNITED URBAN 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 URBAN INV are associated (or correlated) with National Grid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Grid PLC has no effect on the direction of UNITED URBAN i.e., UNITED URBAN and National Grid go up and down completely randomly.

Pair Corralation between UNITED URBAN and National Grid

Assuming the 90 days horizon UNITED URBAN INV is expected to generate 0.56 times more return on investment than National Grid. However, UNITED URBAN INV is 1.8 times less risky than National Grid. It trades about -0.25 of its potential returns per unit of risk. National Grid PLC is currently generating about -0.15 per unit of risk. If you would invest  85,000  in UNITED URBAN INV on September 24, 2024 and sell it today you would lose (5,500) from holding UNITED URBAN INV or give up 6.47% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

UNITED URBAN INV  vs.  National Grid PLC

UNITED URBAN INV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days UNITED URBAN INV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

National Grid PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Grid PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with UNITED URBAN and National Grid

The main advantage of trading using opposite UNITED URBAN and National Grid positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if UNITED URBAN position performs unexpectedly, National Grid 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 National Grid will offset losses from the drop in National Grid's long position.

The idea behind UNITED URBAN INV and National Grid PLC pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Commodity Directory module to find actively traded commodities issued by global exchanges.