Correlation Between SBC Medical and United Utilities

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

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

Diversification Opportunities for SBC Medical and United Utilities

0.2

Correlation Coefficient

SBC Medical  United Utilities

Modest diversification

The 3 months correlation between SBC and United is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding SBC Medical Group and United Utilities Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Utilities and SBC Medical 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 SBC Medical Group 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 SBC Medical i.e., SBC Medical and United Utilities go up and down completely randomly.

Pair Corralation between SBC Medical and United Utilities

Assuming the 90 days horizon SBC Medical Group is expected to generate 7.16 times more return on investment than United Utilities. However, SBC Medical is 7.16 times more volatile than United Utilities Group. It trades about 0.06 of its potential returns per unit of risk. United Utilities Group is currently generating about -0.22 per unit of risk. If you would invest  26.00  in SBC Medical Group on September 22, 2024 and sell it today you would earn a total of  1.00  from holding SBC Medical Group or generate 3.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

SBC Medical Group  vs.  United Utilities Group

SBC Medical Group

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SBC Medical Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, SBC Medical showed solid returns over the last few months and may actually be approaching a breakup point.

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. Despite nearly weak basic indicators, United Utilities may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with SBC Medical and United Utilities

The main advantage of trading using opposite SBC Medical and United Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SBC Medical 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 SBC Medical Group 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.

Check out your portfolio center.

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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.