Correlation Between UNITED UTILITIES and MTRLimited

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

Diversification Opportunities for UNITED UTILITIES and MTRLimited

-0.43

Correlation Coefficient

UNITED UTILITIES  MTRLimited

Very good diversification

The 3 months correlation between UNITED and MTRLimited is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding UNITED UTILITIES GR and MTR Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MTR Limited 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 MTRLimited. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MTR Limited has no effect on the direction of UNITED UTILITIES i.e., UNITED UTILITIES and MTRLimited go up and down completely randomly.

Pair Corralation between UNITED UTILITIES and MTRLimited

Assuming the 90 days trading horizon UNITED UTILITIES GR is expected to under-perform the MTRLimited. In addition to that, UNITED UTILITIES is 1.08 times more volatile than MTR Limited. It trades about -0.34 of its total potential returns per unit of risk. MTR Limited is currently generating about -0.03 per unit of volatility. If you would invest  330.00  in MTR Limited on October 4, 2024 and sell it today you would lose (2.00) from holding MTR Limited or give up 0.61% of portfolio value over 90 days.

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

UNITED UTILITIES GR  vs.  MTR Limited

UNITED UTILITIES

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in UNITED UTILITIES GR are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. 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.

MTR Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MTR Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, MTRLimited 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 MTRLimited

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

The idea behind UNITED UTILITIES GR and MTR Limited 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .