Correlation Between United Utilities and Sparebank

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

By analyzing existing cross correlation between United Utilities Group and Sparebank 1 SR, you can compare the effects of market volatilities on United Utilities and Sparebank 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 United Utilities with a short position of Sparebank. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Utilities and Sparebank.

Diversification Opportunities for United Utilities and Sparebank

0.23

Correlation Coefficient

United Utilities  Sparebank

Modest diversification

The 3 months correlation between United and Sparebank is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding United Utilities Group and Sparebank 1 SR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sparebank 1 SR and United Utilities 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 United Utilities Group are associated (or correlated) with Sparebank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sparebank 1 SR has no effect on the direction of United Utilities i.e., United Utilities and Sparebank go up and down completely randomly.

Pair Corralation between United Utilities and Sparebank

Assuming the 90 days trading horizon United Utilities is expected to generate 1.35 times less return on investment than Sparebank. In addition to that, United Utilities is 1.18 times more volatile than Sparebank 1 SR. It trades about 0.08 of its total potential returns per unit of risk. Sparebank 1 SR is currently generating about 0.13 per unit of volatility. If you would invest  13,580  in Sparebank 1 SR on October 7, 2024 and sell it today you would earn a total of  1,230  from holding Sparebank 1 SR or generate 9.06% return on investment over 90 days.

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

United Utilities Group  vs.  Sparebank 1 SR

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.

Sparebank 1 SR

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sparebank 1 SR are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Sparebank may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with United Utilities and Sparebank

The main advantage of trading using opposite United Utilities and Sparebank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Utilities position performs unexpectedly, Sparebank 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 Sparebank will offset losses from the drop in Sparebank's long position.

The idea behind United Utilities Group and Sparebank 1 SR 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.