Correlation Between United Utilities and INTERSHOP Communications

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

Diversification Opportunities for United Utilities and INTERSHOP Communications

0.29

Correlation Coefficient

United Utilities  INTERSHOP Communications

Modest diversification

The 3 months correlation between United and INTERSHOP is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding United Utilities Group and INTERSHOP Communications Aktie in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INTERSHOP 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 INTERSHOP Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INTERSHOP Communications has no effect on the direction of United Utilities i.e., United Utilities and INTERSHOP Communications go up and down completely randomly.

Pair Corralation between United Utilities and INTERSHOP Communications

Assuming the 90 days trading horizon United Utilities Group is expected to generate 0.58 times more return on investment than INTERSHOP Communications. However, United Utilities Group is 1.71 times less risky than INTERSHOP Communications. It trades about 0.03 of its potential returns per unit of risk. INTERSHOP Communications Aktiengesellschaft is currently generating about -0.02 per unit of risk. If you would invest  1,081  in United Utilities Group on October 5, 2024 and sell it today you would earn a total of  179.00  from holding United Utilities Group or generate 16.56% return on investment over 90 days.

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

United Utilities Group  vs.  INTERSHOP Communications Aktie

United Utilities

Risk-Adjusted Performance

0 of 100

Insignificant

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.

INTERSHOP Communications

Risk-Adjusted Performance

0 of 100

Modest

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

Pair Trading with United Utilities and INTERSHOP Communications

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

The idea behind United Utilities Group and INTERSHOP Communications Aktiengesellschaft 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.