Correlation Between Eastern and United Utilities

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

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

Diversification Opportunities for Eastern and United Utilities

-0.37

Correlation Coefficient

Eastern  United Utilities

Very good diversification

The 3 months correlation between Eastern and United is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Eastern 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 Eastern 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 Eastern 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 Eastern i.e., Eastern and United Utilities go up and down completely randomly.

Pair Corralation between Eastern and United Utilities

Considering the 90-day investment horizon Eastern Co is expected to generate 2.39 times more return on investment than United Utilities. However, Eastern is 2.39 times more volatile than United Utilities Group. It trades about 0.04 of its potential returns per unit of risk. United Utilities Group is currently generating about 0.06 per unit of risk. If you would invest  2,467  in Eastern Co on September 24, 2024 and sell it today you would earn a total of  242.00  from holding Eastern Co or generate 9.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.21%
Values	Daily Returns

Eastern Co  vs.  United Utilities Group

Eastern

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eastern Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's primary indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

United Utilities

Risk-Adjusted Performance

0 of 100

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 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 Eastern and United Utilities

The main advantage of trading using opposite Eastern and United Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eastern 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 Eastern 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.