Correlation Between United Utilities and Summit Midstream

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

Diversification Opportunities for United Utilities and Summit Midstream

0.2

Correlation Coefficient

United Utilities  Summit Midstream

Modest diversification

The 3 months correlation between United and Summit is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding United Utilities Group and Summit Midstream in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Summit Midstream 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 Summit Midstream. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Summit Midstream has no effect on the direction of United Utilities i.e., United Utilities and Summit Midstream go up and down completely randomly.

Pair Corralation between United Utilities and Summit Midstream

Assuming the 90 days horizon United Utilities is expected to generate 4.2 times less return on investment than Summit Midstream. But when comparing it to its historical volatility, United Utilities Group is 1.82 times less risky than Summit Midstream. It trades about 0.03 of its potential returns per unit of risk. Summit Midstream is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,695  in Summit Midstream on September 14, 2024 and sell it today you would earn a total of  1,859  from holding Summit Midstream or generate 109.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	61.82%
Values	Daily Returns

United Utilities Group  vs.  Summit Midstream

United Utilities

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in United Utilities Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, United Utilities may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Summit Midstream

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Summit Midstream are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound primary indicators, Summit Midstream is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with United Utilities and Summit Midstream

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

The idea behind United Utilities Group and Summit Midstream 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 CEOs Directory module to screen CEOs from public companies around the world.