Correlation Between KRAKATAU STEEL and United Utilities

Can any of the company-specific risk be diversified away by investing in both KRAKATAU STEEL 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 KRAKATAU STEEL and United Utilities into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between KRAKATAU STEEL B and United Utilities Group, you can compare the effects of market volatilities on KRAKATAU STEEL 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 KRAKATAU STEEL with a short position of United Utilities. Check out your portfolio center. Please also check ongoing floating volatility patterns of KRAKATAU STEEL and United Utilities.

Diversification Opportunities for KRAKATAU STEEL and United Utilities

0.27

Correlation Coefficient

KRAKATAU STEEL  United Utilities

Modest diversification

The 3 months correlation between KRAKATAU and United is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding KRAKATAU STEEL B and United Utilities Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Utilities and KRAKATAU STEEL 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 KRAKATAU STEEL B 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 KRAKATAU STEEL i.e., KRAKATAU STEEL and United Utilities go up and down completely randomly.

Pair Corralation between KRAKATAU STEEL and United Utilities

Assuming the 90 days trading horizon KRAKATAU STEEL B is expected to generate 4.08 times more return on investment than United Utilities. However, KRAKATAU STEEL is 4.08 times more volatile than United Utilities Group. It trades about 0.02 of its potential returns per unit of risk. United Utilities Group is currently generating about 0.03 per unit of risk. If you would invest  2.75  in KRAKATAU STEEL B on September 22, 2024 and sell it today you would lose (2.15) from holding KRAKATAU STEEL B or give up 78.18% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

KRAKATAU STEEL B   vs.  United Utilities Group

KRAKATAU STEEL B

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in KRAKATAU STEEL B are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward-looking signals, KRAKATAU STEEL unveiled solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with KRAKATAU STEEL and United Utilities

The main advantage of trading using opposite KRAKATAU STEEL and United Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KRAKATAU STEEL 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.

The idea behind KRAKATAU STEEL B and United Utilities Group 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.