Correlation Between Aris Water and United Utilities

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

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

Diversification Opportunities for Aris Water and United Utilities

0.76

Correlation Coefficient

Aris Water  United Utilities

Poor diversification

The 3 months correlation between Aris and United is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Aris Water Solutions and United Utilities Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Utilities and Aris Water 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 Aris Water Solutions 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 Aris Water i.e., Aris Water and United Utilities go up and down completely randomly.

Pair Corralation between Aris Water and United Utilities

Given the investment horizon of 90 days Aris Water Solutions is expected to generate 4.67 times more return on investment than United Utilities. However, Aris Water is 4.67 times more volatile than United Utilities Group. It trades about 0.24 of its potential returns per unit of risk. United Utilities Group is currently generating about 0.07 per unit of risk. If you would invest  1,620  in Aris Water Solutions on October 20, 2024 and sell it today you would earn a total of  1,360  from holding Aris Water Solutions or generate 83.95% return on investment over 90 days.

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

Aris Water Solutions  vs.  United Utilities Group

Aris Water Solutions

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Aris Water Solutions are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak forward indicators, Aris Water unveiled solid returns over the last few months and may actually be approaching a breakup point.

United Utilities

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in United Utilities Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, United Utilities is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Aris Water and United Utilities

The main advantage of trading using opposite Aris Water and United Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aris Water 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 Aris Water Solutions 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.

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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.