Correlation Between United Utilities and Cheniere Energy

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

Diversification Opportunities for United Utilities and Cheniere Energy

0.6

Correlation Coefficient

United Utilities  Cheniere Energy

Poor diversification

The 3 months correlation between United and Cheniere is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding United Utilities Group and Cheniere Energy Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cheniere Energy Partners 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 Cheniere Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cheniere Energy Partners has no effect on the direction of United Utilities i.e., United Utilities and Cheniere Energy go up and down completely randomly.

Pair Corralation between United Utilities and Cheniere Energy

Assuming the 90 days horizon United Utilities Group is expected to generate 1.06 times more return on investment than Cheniere Energy. However, United Utilities is 1.06 times more volatile than Cheniere Energy Partners. It trades about 0.03 of its potential returns per unit of risk. Cheniere Energy Partners is currently generating about 0.02 per unit of risk. If you would invest  1,270  in United Utilities Group on October 3, 2024 and sell it today you would earn a total of  124.00  from holding United Utilities Group or generate 9.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	62.02%
Values	Daily Returns

United Utilities Group  vs.  Cheniere Energy Partners

United Utilities

Risk-Adjusted Performance

0 of 100

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 basic indicators, United Utilities is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Cheniere Energy Partners

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cheniere Energy Partners are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Cheniere Energy may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with United Utilities and Cheniere Energy

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

The idea behind United Utilities Group and Cheniere Energy Partners 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.