Correlation Between Flowtech Fluidpower and United Utilities

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

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

Diversification Opportunities for Flowtech Fluidpower and United Utilities

-0.31

Correlation Coefficient

Flowtech Fluidpower  United Utilities

Very good diversification

The 3 months correlation between Flowtech and United is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Flowtech Fluidpower plc and United Utilities Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Utilities and Flowtech Fluidpower 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 Flowtech Fluidpower plc 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 Flowtech Fluidpower i.e., Flowtech Fluidpower and United Utilities go up and down completely randomly.

Pair Corralation between Flowtech Fluidpower and United Utilities

Assuming the 90 days trading horizon Flowtech Fluidpower plc is expected to under-perform the United Utilities. But the stock apears to be less risky and, when comparing its historical volatility, Flowtech Fluidpower plc is 1.02 times less risky than United Utilities. The stock trades about -0.14 of its potential returns per unit of risk. The United Utilities Group is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  100,595  in United Utilities Group on September 4, 2024 and sell it today you would earn a total of  11,055  from holding United Utilities Group or generate 10.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.67%
Values	Daily Returns

Flowtech Fluidpower plc  vs.  United Utilities Group

Flowtech Fluidpower plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Flowtech Fluidpower plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

United Utilities

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in United Utilities Group are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, United Utilities may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Flowtech Fluidpower and United Utilities

The main advantage of trading using opposite Flowtech Fluidpower and United Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Flowtech Fluidpower 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 Flowtech Fluidpower plc 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.