Correlation Between UNITED UTILITIES and Amazon

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

Diversification Opportunities for UNITED UTILITIES and Amazon

0.6

Correlation Coefficient

UNITED UTILITIES  Amazon

Poor diversification

The 3 months correlation between UNITED and Amazon is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding UNITED UTILITIES GR and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc 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 Amazon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amazon Inc has no effect on the direction of UNITED UTILITIES i.e., UNITED UTILITIES and Amazon go up and down completely randomly.

Pair Corralation between UNITED UTILITIES and Amazon

Assuming the 90 days trading horizon UNITED UTILITIES is expected to generate 1.62 times less return on investment than Amazon. But when comparing it to its historical volatility, UNITED UTILITIES GR is 1.33 times less risky than Amazon. It trades about 0.17 of its potential returns per unit of risk. Amazon Inc is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  15,918  in Amazon Inc on September 3, 2024 and sell it today you would earn a total of  3,764  from holding Amazon Inc or generate 23.65% return on investment over 90 days.

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

UNITED UTILITIES GR  vs.  Amazon Inc

UNITED UTILITIES

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in UNITED UTILITIES GR are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, UNITED UTILITIES unveiled solid returns over the last few months and may actually be approaching a breakup point.

Amazon Inc

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Amazon reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with UNITED UTILITIES and Amazon

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

The idea behind UNITED UTILITIES GR and Amazon Inc 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.