Correlation Between United Utilities and Reliance Steel

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

Diversification Opportunities for United Utilities and Reliance Steel

0.79

Correlation Coefficient

United Utilities  Reliance Steel

Poor diversification

The 3 months correlation between United and Reliance is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding United Utilities Group and Reliance Steel Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reliance Steel Aluminum 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 Reliance Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reliance Steel Aluminum has no effect on the direction of United Utilities i.e., United Utilities and Reliance Steel go up and down completely randomly.

Pair Corralation between United Utilities and Reliance Steel

Assuming the 90 days trading horizon United Utilities Group is expected to generate 0.92 times more return on investment than Reliance Steel. However, United Utilities Group is 1.09 times less risky than Reliance Steel. It trades about 0.05 of its potential returns per unit of risk. Reliance Steel Aluminum is currently generating about -0.01 per unit of risk. If you would invest  1,175  in United Utilities Group on September 21, 2024 and sell it today you would earn a total of  85.00  from holding United Utilities Group or generate 7.23% return on investment over 90 days.

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

United Utilities Group  vs.  Reliance Steel Aluminum

United Utilities

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in United Utilities Group are ranked lower than 3 (%) 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.

Reliance Steel Aluminum

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Steel Aluminum are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Reliance Steel may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with United Utilities and Reliance Steel

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

The idea behind United Utilities Group and Reliance Steel Aluminum 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.