Correlation Between United Utilities and TFS FINANCIAL

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

Diversification Opportunities for United Utilities and TFS FINANCIAL

0.68

Correlation Coefficient

United Utilities  TFS FINANCIAL

Poor diversification

The 3 months correlation between United and TFS is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding United Utilities Group and TFS FINANCIAL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TFS FINANCIAL 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 TFS FINANCIAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TFS FINANCIAL has no effect on the direction of United Utilities i.e., United Utilities and TFS FINANCIAL go up and down completely randomly.

Pair Corralation between United Utilities and TFS FINANCIAL

Assuming the 90 days trading horizon United Utilities is expected to generate 1.1 times less return on investment than TFS FINANCIAL. But when comparing it to its historical volatility, United Utilities Group is 1.17 times less risky than TFS FINANCIAL. It trades about 0.11 of its potential returns per unit of risk. TFS FINANCIAL is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,191  in TFS FINANCIAL on August 31, 2024 and sell it today you would earn a total of  149.00  from holding TFS FINANCIAL or generate 12.51% 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.  TFS FINANCIAL

United Utilities

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in United Utilities Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, United Utilities may actually be approaching a critical reversion point that can send shares even higher in December 2024.

TFS FINANCIAL

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in TFS FINANCIAL are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, TFS FINANCIAL exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United Utilities and TFS FINANCIAL

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

The idea behind United Utilities Group and TFS FINANCIAL 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.