Correlation Between United Utilities and Dermapharm Holding

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

Diversification Opportunities for United Utilities and Dermapharm Holding

-0.15

Correlation Coefficient

United Utilities  Dermapharm Holding

Good diversification

The 3 months correlation between United and Dermapharm is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding United Utilities Group and Dermapharm Holding SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dermapharm Holding 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 Dermapharm Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dermapharm Holding has no effect on the direction of United Utilities i.e., United Utilities and Dermapharm Holding go up and down completely randomly.

Pair Corralation between United Utilities and Dermapharm Holding

Assuming the 90 days trading horizon United Utilities is expected to generate 6.31 times less return on investment than Dermapharm Holding. But when comparing it to its historical volatility, United Utilities Group is 1.02 times less risky than Dermapharm Holding. It trades about 0.01 of its potential returns per unit of risk. Dermapharm Holding SE is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  3,510  in Dermapharm Holding SE on October 26, 2024 and sell it today you would earn a total of  540.00  from holding Dermapharm Holding SE or generate 15.38% 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.  Dermapharm Holding SE

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.

Dermapharm Holding

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dermapharm Holding SE are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Dermapharm Holding unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United Utilities and Dermapharm Holding

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

The idea behind United Utilities Group and Dermapharm Holding SE 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.