Correlation Between United Utilities and Tokyo Gas

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

Diversification Opportunities for United Utilities and Tokyo Gas

0.82

Correlation Coefficient

United Utilities  Tokyo Gas

Very poor diversification

The 3 months correlation between United and Tokyo is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding United Utilities Group and Tokyo Gas CoLtd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tokyo Gas CoLtd 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 Tokyo Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tokyo Gas CoLtd has no effect on the direction of United Utilities i.e., United Utilities and Tokyo Gas go up and down completely randomly.

Pair Corralation between United Utilities and Tokyo Gas

Assuming the 90 days trading horizon United Utilities is expected to generate 1.94 times less return on investment than Tokyo Gas. But when comparing it to its historical volatility, United Utilities Group is 1.2 times less risky than Tokyo Gas. It trades about 0.03 of its potential returns per unit of risk. Tokyo Gas CoLtd is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,950  in Tokyo Gas CoLtd on September 14, 2024 and sell it today you would earn a total of  830.00  from holding Tokyo Gas CoLtd or generate 42.56% 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.  Tokyo Gas CoLtd

United Utilities

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in United Utilities Group are ranked lower than 5 (%) 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 January 2025.

Tokyo Gas CoLtd

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tokyo Gas CoLtd are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Tokyo Gas reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United Utilities and Tokyo Gas

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

The idea behind United Utilities Group and Tokyo Gas CoLtd 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.