Correlation Between InPlay Oil and United Utilities

Can any of the company-specific risk be diversified away by investing in both InPlay Oil and United Utilities 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 InPlay Oil and United Utilities into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between InPlay Oil Corp and United Utilities Group, you can compare the effects of market volatilities on InPlay Oil and United Utilities 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 InPlay Oil with a short position of United Utilities. Check out your portfolio center. Please also check ongoing floating volatility patterns of InPlay Oil and United Utilities.

Diversification Opportunities for InPlay Oil and United Utilities

-0.52

Correlation Coefficient

InPlay Oil  United Utilities

Excellent diversification

The 3 months correlation between InPlay and United is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding InPlay Oil Corp and United Utilities Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Utilities and InPlay Oil 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 InPlay Oil Corp are associated (or correlated) with United Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Utilities has no effect on the direction of InPlay Oil i.e., InPlay Oil and United Utilities go up and down completely randomly.

Pair Corralation between InPlay Oil and United Utilities

Assuming the 90 days trading horizon InPlay Oil Corp is expected to generate 1.37 times more return on investment than United Utilities. However, InPlay Oil is 1.37 times more volatile than United Utilities Group. It trades about 0.12 of its potential returns per unit of risk. United Utilities Group is currently generating about -0.1 per unit of risk. If you would invest  109.00  in InPlay Oil Corp on October 11, 2024 and sell it today you would earn a total of  8.00  from holding InPlay Oil Corp or generate 7.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

InPlay Oil Corp  vs.  United Utilities Group

InPlay Oil Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days InPlay Oil Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

United Utilities

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in United Utilities Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, United Utilities is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with InPlay Oil and United Utilities

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

The idea behind InPlay Oil Corp and United Utilities Group 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.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.