Correlation Between River and United Utilities

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

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

Diversification Opportunities for River and United Utilities

0.61

Correlation Coefficient

River  United Utilities

Poor diversification

The 3 months correlation between River and United is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding River and Mercantile and United Utilities Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Utilities and River 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 River and Mercantile 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 River i.e., River and United Utilities go up and down completely randomly.

Pair Corralation between River and United Utilities

If you would invest (100.00) in River and Mercantile on October 4, 2024 and sell it today you would earn a total of  100.00  from holding River and Mercantile or generate -100.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	0.0%
Values	Daily Returns

River and Mercantile  vs.  United Utilities Group

River and Mercantile

Risk-Adjusted Performance

0 of 100

Modest

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

United Utilities

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in United Utilities Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, United Utilities may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with River and United Utilities

The main advantage of trading using opposite River and United Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if River 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 River and Mercantile 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.