Correlation Between Federal Realty and United Utilities

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Can any of the company-specific risk be diversified away by investing in both Federal Realty 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 Federal Realty and United Utilities into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Federal Realty Investment and United Utilities Group, you can compare the effects of market volatilities on Federal Realty 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 Federal Realty with a short position of United Utilities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federal Realty and United Utilities.

Diversification Opportunities for Federal Realty and United Utilities

FederalUnitedDiversified AwayFederalUnitedDiversified Away100%
0.54
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Federal and United is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Federal Realty Investment and United Utilities Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Utilities and Federal Realty 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 Federal Realty Investment 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 Federal Realty i.e., Federal Realty and United Utilities go up and down completely randomly.

Pair Corralation between Federal Realty and United Utilities

Assuming the 90 days trading horizon Federal Realty Investment is expected to under-perform the United Utilities. But the stock apears to be less risky and, when comparing its historical volatility, Federal Realty Investment is 1.46 times less risky than United Utilities. The stock trades about -0.02 of its potential returns per unit of risk. The United Utilities Group is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  103,992  in United Utilities Group on September 16, 2024 and sell it today you would earn a total of  4,208  from holding United Utilities Group or generate 4.05% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy98.48%
ValuesDaily Returns

Federal Realty Investment  vs.  United Utilities Group

 Performance 
JavaScript chart by amCharts 3.21.15OctNov -505
JavaScript chart by amCharts 3.21.150IL1 UU
       Timeline  
Federal Realty Investment 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Federal Realty Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Federal Realty is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec110111112113114115116117118
United Utilities 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in United Utilities Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, United Utilities is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec1,0001,0201,0401,0601,0801,1001,1201,140

Federal Realty and United Utilities Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-1.43-1.06-0.69-0.32-0.0120.260.631.01.371.74 0.10.20.30.40.5
JavaScript chart by amCharts 3.21.150IL1 UU
       Returns  

Pair Trading with Federal Realty and United Utilities

The main advantage of trading using opposite Federal Realty and United Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Federal Realty 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 Federal Realty Investment 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.

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