Correlation Between United Utilities and Big 5

Can any of the company-specific risk be diversified away by investing in both United Utilities and Big 5 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 Big 5 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 Big 5 Sporting, you can compare the effects of market volatilities on United Utilities and Big 5 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 Big 5. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Utilities and Big 5.

Diversification Opportunities for United Utilities and Big 5

-0.39

Correlation Coefficient

United Utilities  Big 5

Very good diversification

The 3 months correlation between United and Big is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding United Utilities Group and Big 5 Sporting in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Big 5 Sporting 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 Big 5. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Big 5 Sporting has no effect on the direction of United Utilities i.e., United Utilities and Big 5 go up and down completely randomly.

Pair Corralation between United Utilities and Big 5

Assuming the 90 days trading horizon United Utilities Group is expected to generate 0.37 times more return on investment than Big 5. However, United Utilities Group is 2.67 times less risky than Big 5. It trades about 0.05 of its potential returns per unit of risk. Big 5 Sporting is currently generating about -0.01 per unit of risk. If you would invest  1,254  in United Utilities Group on September 12, 2024 and sell it today you would earn a total of  56.00  from holding United Utilities Group or generate 4.47% return on investment over 90 days.

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

United Utilities Group  vs.  Big 5 Sporting

United Utilities

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in United Utilities Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, United Utilities is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Big 5 Sporting

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Big 5 Sporting has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Big 5 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 Big 5

The main advantage of trading using opposite United Utilities and Big 5 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Utilities position performs unexpectedly, Big 5 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 Big 5 will offset losses from the drop in Big 5's long position.

The idea behind United Utilities Group and Big 5 Sporting 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.