Correlation Between Monks Investment and United Utilities

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

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

Diversification Opportunities for Monks Investment and United Utilities

0.14

Correlation Coefficient

Monks Investment  United Utilities

Average diversification

The 3 months correlation between Monks and United is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Monks Investment Trust and United Utilities Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Utilities and Monks Investment 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 Monks Investment Trust 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 Monks Investment i.e., Monks Investment and United Utilities go up and down completely randomly.

Pair Corralation between Monks Investment and United Utilities

Assuming the 90 days trading horizon Monks Investment Trust is expected to under-perform the United Utilities. But the stock apears to be less risky and, when comparing its historical volatility, Monks Investment Trust is 1.18 times less risky than United Utilities. The stock trades about -0.06 of its potential returns per unit of risk. The United Utilities Group is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  104,550  in United Utilities Group on December 30, 2024 and sell it today you would lose (4,100) from holding United Utilities Group or give up 3.92% of portfolio value over 90 days.

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

Monks Investment Trust  vs.  United Utilities Group

Monks Investment Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days Monks Investment Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Monks Investment is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

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. In spite of rather sound basic indicators, United Utilities is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Monks Investment and United Utilities

The main advantage of trading using opposite Monks Investment and United Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Monks Investment 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 Monks Investment Trust 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.