Correlation Between United Utilities and Hitachi

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

Diversification Opportunities for United Utilities and Hitachi

0.23

Correlation Coefficient

United Utilities  Hitachi

Modest diversification

The 3 months correlation between United and Hitachi is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding United Utilities Group and Hitachi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hitachi 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 Hitachi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hitachi has no effect on the direction of United Utilities i.e., United Utilities and Hitachi go up and down completely randomly.

Pair Corralation between United Utilities and Hitachi

Assuming the 90 days trading horizon United Utilities Group is expected to under-perform the Hitachi. But the stock apears to be less risky and, when comparing its historical volatility, United Utilities Group is 1.34 times less risky than Hitachi. The stock trades about -0.06 of its potential returns per unit of risk. The Hitachi is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  2,342  in Hitachi on December 22, 2024 and sell it today you would lose (41.00) from holding Hitachi or give up 1.75% 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.  Hitachi

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 latest fragile performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Hitachi

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hitachi has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Hitachi is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with United Utilities and Hitachi

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

The idea behind United Utilities Group and Hitachi 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.