Correlation Between UNITED UTILITIES and NIKKON HOLDINGS

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

By analyzing existing cross correlation between UNITED UTILITIES GR and NIKKON HOLDINGS TD, you can compare the effects of market volatilities on UNITED UTILITIES and NIKKON HOLDINGS 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 NIKKON HOLDINGS. Check out your portfolio center. Please also check ongoing floating volatility patterns of UNITED UTILITIES and NIKKON HOLDINGS.

Diversification Opportunities for UNITED UTILITIES and NIKKON HOLDINGS

0.56

Correlation Coefficient

UNITED UTILITIES  NIKKON HOLDINGS

Very weak diversification

The 3 months correlation between UNITED and NIKKON is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding UNITED UTILITIES GR and NIKKON HOLDINGS TD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NIKKON HOLDINGS TD 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 GR are associated (or correlated) with NIKKON HOLDINGS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NIKKON HOLDINGS TD has no effect on the direction of UNITED UTILITIES i.e., UNITED UTILITIES and NIKKON HOLDINGS go up and down completely randomly.

Pair Corralation between UNITED UTILITIES and NIKKON HOLDINGS

Assuming the 90 days trading horizon UNITED UTILITIES is expected to generate 2.16 times less return on investment than NIKKON HOLDINGS. In addition to that, UNITED UTILITIES is 1.04 times more volatile than NIKKON HOLDINGS TD. It trades about 0.03 of its total potential returns per unit of risk. NIKKON HOLDINGS TD is currently generating about 0.07 per unit of volatility. If you would invest  810.00  in NIKKON HOLDINGS TD on October 5, 2024 and sell it today you would earn a total of  420.00  from holding NIKKON HOLDINGS TD or generate 51.85% return on investment over 90 days.

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

UNITED UTILITIES GR  vs.  NIKKON HOLDINGS TD

UNITED UTILITIES

Risk-Adjusted Performance

0 of 100

Modest

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

NIKKON HOLDINGS TD

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days NIKKON HOLDINGS TD has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, NIKKON HOLDINGS is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with UNITED UTILITIES and NIKKON HOLDINGS

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

The idea behind UNITED UTILITIES GR and NIKKON HOLDINGS TD 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.