Correlation Between United Utilities and URU Metals

Can any of the company-specific risk be diversified away by investing in both United Utilities and URU Metals 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 URU Metals 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 URU Metals, you can compare the effects of market volatilities on United Utilities and URU Metals 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 URU Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Utilities and URU Metals.

Diversification Opportunities for United Utilities and URU Metals

0.45

Correlation Coefficient

United Utilities  URU Metals

Very weak diversification

The 3 months correlation between United and URU is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding United Utilities Group and URU Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on URU Metals 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 URU Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of URU Metals has no effect on the direction of United Utilities i.e., United Utilities and URU Metals go up and down completely randomly.

Pair Corralation between United Utilities and URU Metals

Assuming the 90 days trading horizon United Utilities Group is expected to generate 0.29 times more return on investment than URU Metals. However, United Utilities Group is 3.41 times less risky than URU Metals. It trades about -0.25 of its potential returns per unit of risk. URU Metals is currently generating about -0.15 per unit of risk. If you would invest  107,672  in United Utilities Group on October 8, 2024 and sell it today you would lose (4,172) from holding United Utilities Group or give up 3.87% of portfolio value over 90 days.

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

United Utilities Group  vs.  URU Metals

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 uncertain basic indicators, United Utilities may actually be approaching a critical reversion point that can send shares even higher in February 2025.

URU Metals

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in URU Metals are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, URU Metals exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United Utilities and URU Metals

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

The idea behind United Utilities Group and URU Metals 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.