Correlation Between Coffee Holding and United Utilities

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

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

Diversification Opportunities for Coffee Holding and United Utilities

-0.4

Correlation Coefficient

Coffee Holding  United Utilities

Very good diversification

The 3 months correlation between Coffee and United is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Coffee Holding Co and United Utilities Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Utilities and Coffee Holding 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 Coffee Holding Co 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 Coffee Holding i.e., Coffee Holding and United Utilities go up and down completely randomly.

Pair Corralation between Coffee Holding and United Utilities

Assuming the 90 days horizon Coffee Holding Co is expected to generate 4.14 times more return on investment than United Utilities. However, Coffee Holding is 4.14 times more volatile than United Utilities Group. It trades about 0.1 of its potential returns per unit of risk. United Utilities Group is currently generating about -0.05 per unit of risk. If you would invest  336.00  in Coffee Holding Co on December 20, 2024 and sell it today you would earn a total of  110.00  from holding Coffee Holding Co or generate 32.74% return on investment over 90 days.

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

Coffee Holding Co  vs.  United Utilities Group

Coffee Holding

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Coffee Holding Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Coffee Holding reported solid returns over the last few months and may actually be approaching a breakup point.

United Utilities

Risk-Adjusted Performance

Very Weak

Over the last 90 days United Utilities Group 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 Coffee Holding and United Utilities

The main advantage of trading using opposite Coffee Holding and United Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coffee Holding 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 Coffee Holding Co 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.