Correlation Between Timken and United Utilities

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

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

Diversification Opportunities for Timken and United Utilities

-0.46

Correlation Coefficient

Timken  United Utilities

Very good diversification

The 3 months correlation between Timken and United is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Timken Company and United Utilities Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Utilities and Timken 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 Timken Company 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 Timken i.e., Timken and United Utilities go up and down completely randomly.

Pair Corralation between Timken and United Utilities

Considering the 90-day investment horizon Timken is expected to generate 1.61 times less return on investment than United Utilities. But when comparing it to its historical volatility, Timken Company is 1.01 times less risky than United Utilities. It trades about 0.02 of its potential returns per unit of risk. United Utilities Group is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,270  in United Utilities Group on September 24, 2024 and sell it today you would earn a total of  124.00  from holding United Utilities Group or generate 9.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	62.05%
Values	Daily Returns

Timken Company  vs.  United Utilities Group

Timken Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Timken Company has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unsteady performance in the last few months, the Stock's forward-looking signals remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

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 Timken and United Utilities

The main advantage of trading using opposite Timken and United Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Timken 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 Timken Company 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.