Correlation Between American Water and United Utilities
Can any of the company-specific risk be diversified away by investing in both American Water and United Utilities 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 American Water and United Utilities into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Water Works and United Utilities Group, you can compare the effects of market volatilities on American Water and United Utilities 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 American Water with a short position of United Utilities. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Water and United Utilities.
Diversification Opportunities for American Water and United Utilities
0.49 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between American and United is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding American Water Works and United Utilities Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Utilities and American Water 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 American Water Works are associated (or correlated) with United Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Utilities has no effect on the direction of American Water i.e., American Water and United Utilities go up and down completely randomly.
Pair Corralation between American Water and United Utilities
Considering the 90-day investment horizon American Water Works is expected to generate 1.44 times more return on investment than United Utilities. However, American Water is 1.44 times more volatile than United Utilities Group. It trades about 0.1 of its potential returns per unit of risk. United Utilities Group is currently generating about -0.05 per unit of risk. If you would invest 11,784 in American Water Works on January 26, 2024 and sell it today you would earn a total of 352.00 from holding American Water Works or generate 2.99% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 95.45% |
Values | Daily Returns |
American Water Works vs. United Utilities Group
Performance |
Timeline |
American Water Works |
United Utilities |
American Water and United Utilities Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with American Water and United Utilities
The main advantage of trading using opposite American Water and United Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Water position performs unexpectedly, United Utilities 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 United Utilities will offset losses from the drop in United Utilities' long position.American Water vs. California Water Service | American Water vs. Middlesex Water | American Water vs. American States Water | American Water vs. The York Water |
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Check out your portfolio center.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 Transaction History module to view history of all your transactions and understand their impact on performance.
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