Correlation Between United Utilities and Charter Communications

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

Diversification Opportunities for United Utilities and Charter Communications

0.25

Correlation Coefficient

United Utilities  Charter Communications

Modest diversification

The 3 months correlation between United and Charter is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding United Utilities Group and Charter Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Charter Communications 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 Charter Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Charter Communications has no effect on the direction of United Utilities i.e., United Utilities and Charter Communications go up and down completely randomly.

Pair Corralation between United Utilities and Charter Communications

Assuming the 90 days trading horizon United Utilities Group is expected to under-perform the Charter Communications. In addition to that, United Utilities is 1.19 times more volatile than Charter Communications. It trades about -0.05 of its total potential returns per unit of risk. Charter Communications is currently generating about 0.0 per unit of volatility. If you would invest  33,565  in Charter Communications on December 23, 2024 and sell it today you would lose (180.00) from holding Charter Communications or give up 0.54% of portfolio value over 90 days.

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

United Utilities Group  vs.  Charter Communications

United Utilities

Risk-Adjusted Performance

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 latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Charter Communications

Risk-Adjusted Performance

Very Weak

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

Pair Trading with United Utilities and Charter Communications

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

The idea behind United Utilities Group and Charter Communications 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.