Correlation Between United Utilities and Eidesvik Offshore

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

Diversification Opportunities for United Utilities and Eidesvik Offshore

0.34

Correlation Coefficient

United Utilities  Eidesvik Offshore

Weak diversification

The 3 months correlation between United and Eidesvik is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding United Utilities Group and Eidesvik Offshore ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eidesvik Offshore ASA 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 Eidesvik Offshore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eidesvik Offshore ASA has no effect on the direction of United Utilities i.e., United Utilities and Eidesvik Offshore go up and down completely randomly.

Pair Corralation between United Utilities and Eidesvik Offshore

Assuming the 90 days trading horizon United Utilities Group is expected to under-perform the Eidesvik Offshore. But the stock apears to be less risky and, when comparing its historical volatility, United Utilities Group is 1.16 times less risky than Eidesvik Offshore. The stock trades about -0.05 of its potential returns per unit of risk. The Eidesvik Offshore ASA is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  108.00  in Eidesvik Offshore ASA on December 30, 2024 and sell it today you would lose (7.00) from holding Eidesvik Offshore ASA or give up 6.48% 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.  Eidesvik Offshore ASA

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

Eidesvik Offshore ASA

Risk-Adjusted Performance

Very Weak

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

Pair Trading with United Utilities and Eidesvik Offshore

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

The idea behind United Utilities Group and Eidesvik Offshore ASA 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.