Correlation Between NiSource and United Utilities

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

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

Diversification Opportunities for NiSource and United Utilities

0.62

Correlation Coefficient

NiSource  United Utilities

Poor diversification

The 3 months correlation between NiSource and United is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding NiSource and United Utilities Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Utilities and NiSource 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 NiSource 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 NiSource i.e., NiSource and United Utilities go up and down completely randomly.

Pair Corralation between NiSource and United Utilities

Allowing for the 90-day total investment horizon NiSource is expected to generate 0.67 times more return on investment than United Utilities. However, NiSource is 1.5 times less risky than United Utilities. It trades about 0.15 of its potential returns per unit of risk. United Utilities Group is currently generating about 0.08 per unit of risk. If you would invest  3,294  in NiSource on October 3, 2024 and sell it today you would earn a total of  382.00  from holding NiSource or generate 11.6% return on investment over 90 days.

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

NiSource  vs.  United Utilities Group

NiSource

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NiSource are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak forward indicators, NiSource may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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 NiSource and United Utilities

The main advantage of trading using opposite NiSource and United Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NiSource 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 NiSource 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.