Correlation Between United Utilities and Guaranty Trust

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

Diversification Opportunities for United Utilities and Guaranty Trust

0.6

Correlation Coefficient

United Utilities  Guaranty Trust

Poor diversification

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

Pair Corralation between United Utilities and Guaranty Trust

Assuming the 90 days trading horizon United Utilities Group is expected to generate 0.93 times more return on investment than Guaranty Trust. However, United Utilities Group is 1.08 times less risky than Guaranty Trust. It trades about 0.14 of its potential returns per unit of risk. Guaranty Trust Holding is currently generating about 0.1 per unit of risk. If you would invest  103,057  in United Utilities Group on September 13, 2024 and sell it today you would earn a total of  3,993  from holding United Utilities Group or generate 3.87% 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.  Guaranty Trust Holding

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. 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.

Guaranty Trust Holding

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Guaranty Trust Holding are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent essential indicators, Guaranty Trust is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with United Utilities and Guaranty Trust

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

The idea behind United Utilities Group and Guaranty Trust Holding 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.

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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.