Correlation Between United Utilities and Ross Stores

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

Diversification Opportunities for United Utilities and Ross Stores

0.83

Correlation Coefficient

United Utilities  Ross Stores

Very poor diversification

The 3 months correlation between United and Ross is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding United Utilities Group and Ross Stores in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ross Stores 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 Ross Stores. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ross Stores has no effect on the direction of United Utilities i.e., United Utilities and Ross Stores go up and down completely randomly.

Pair Corralation between United Utilities and Ross Stores

Assuming the 90 days trading horizon United Utilities is expected to generate 1.8 times less return on investment than Ross Stores. In addition to that, United Utilities is 1.13 times more volatile than Ross Stores. It trades about 0.03 of its total potential returns per unit of risk. Ross Stores is currently generating about 0.05 per unit of volatility. If you would invest  10,391  in Ross Stores on September 26, 2024 and sell it today you would earn a total of  3,813  from holding Ross Stores or generate 36.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

United Utilities Group  vs.  Ross Stores

United Utilities

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in United Utilities Group are ranked lower than 1 (%) 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.

Ross Stores

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ross Stores are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Ross Stores is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with United Utilities and Ross Stores

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

The idea behind United Utilities Group and Ross Stores 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.