Correlation Between INSURANCE AUST and United Utilities

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

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

Diversification Opportunities for INSURANCE AUST and United Utilities

0.23

Correlation Coefficient

INSURANCE AUST  United Utilities

Modest diversification

The 3 months correlation between INSURANCE and United is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding INSURANCE AUST GRP and United Utilities Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Utilities and INSURANCE AUST 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 INSURANCE AUST GRP 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 INSURANCE AUST i.e., INSURANCE AUST and United Utilities go up and down completely randomly.

Pair Corralation between INSURANCE AUST and United Utilities

Assuming the 90 days trading horizon INSURANCE AUST GRP is expected to generate 0.54 times more return on investment than United Utilities. However, INSURANCE AUST GRP is 1.84 times less risky than United Utilities. It trades about 0.2 of its potential returns per unit of risk. United Utilities Group is currently generating about -0.15 per unit of risk. If you would invest  494.00  in INSURANCE AUST GRP on October 23, 2024 and sell it today you would earn a total of  21.00  from holding INSURANCE AUST GRP or generate 4.25% return on investment over 90 days.

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

INSURANCE AUST GRP  vs.  United Utilities Group

INSURANCE AUST GRP

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in INSURANCE AUST GRP are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile primary indicators, INSURANCE AUST exhibited solid returns over the last few months and may actually be approaching a breakup point.

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 latest uncertain 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 INSURANCE AUST and United Utilities

The main advantage of trading using opposite INSURANCE AUST and United Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if INSURANCE AUST 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 INSURANCE AUST GRP 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.