Correlation Between United Utilities and BII Railway

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

Diversification Opportunities for United Utilities and BII Railway

-0.4

Correlation Coefficient

United Utilities  BII Railway

Very good diversification

The 3 months correlation between United and BII is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding United Utilities Group and BII Railway Transportation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BII Railway Transpor 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 BII Railway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BII Railway Transpor has no effect on the direction of United Utilities i.e., United Utilities and BII Railway go up and down completely randomly.

Pair Corralation between United Utilities and BII Railway

Assuming the 90 days trading horizon United Utilities Group is expected to under-perform the BII Railway. In addition to that, United Utilities is 1.67 times more volatile than BII Railway Transportation. It trades about -0.14 of its total potential returns per unit of risk. BII Railway Transportation is currently generating about -0.06 per unit of volatility. If you would invest  2.80  in BII Railway Transportation on October 25, 2024 and sell it today you would lose (0.05) from holding BII Railway Transportation or give up 1.79% 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 Group  vs.  BII Railway Transportation

United Utilities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United Utilities Group has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

BII Railway Transpor

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BII Railway Transportation are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, BII Railway may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with United Utilities and BII Railway

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

The idea behind United Utilities Group and BII Railway Transportation 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.