Correlation Between United Utilities and Deutsche Wohnen

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

Diversification Opportunities for United Utilities and Deutsche Wohnen

0.06

Correlation Coefficient

United Utilities  Deutsche Wohnen

Significant diversification

The 3 months correlation between United and Deutsche is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding United Utilities Group and Deutsche Wohnen SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deutsche Wohnen SE 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 Deutsche Wohnen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deutsche Wohnen SE has no effect on the direction of United Utilities i.e., United Utilities and Deutsche Wohnen go up and down completely randomly.

Pair Corralation between United Utilities and Deutsche Wohnen

Assuming the 90 days trading horizon United Utilities Group is expected to under-perform the Deutsche Wohnen. But the stock apears to be less risky and, when comparing its historical volatility, United Utilities Group is 1.88 times less risky than Deutsche Wohnen. The stock trades about -0.34 of its potential returns per unit of risk. The Deutsche Wohnen SE is currently generating about -0.14 of returns per unit of risk over similar time horizon. If you would invest  2,475  in Deutsche Wohnen SE on September 29, 2024 and sell it today you would lose (145.00) from holding Deutsche Wohnen SE or give up 5.86% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

United Utilities Group  vs.  Deutsche Wohnen SE

United Utilities

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in United Utilities Group are ranked lower than 1 (%) 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.

Deutsche Wohnen SE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Deutsche Wohnen SE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward indicators, Deutsche Wohnen is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with United Utilities and Deutsche Wohnen

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

The idea behind United Utilities Group and Deutsche Wohnen 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.

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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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.