Correlation Between Aqua America and American Water
Can any of the company-specific risk be diversified away by investing in both Aqua America and American Water 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 Aqua America and American Water into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Aqua America and American Water Works, you can compare the effects of market volatilities on Aqua America and American Water 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 Aqua America with a short position of American Water. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aqua America and American Water.
Diversification Opportunities for Aqua America and American Water
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Aqua and American is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Aqua America and American Water Works in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Water Works and Aqua America 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 Aqua America are associated (or correlated) with American Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Water Works has no effect on the direction of Aqua America i.e., Aqua America and American Water go up and down completely randomly.
Pair Corralation between Aqua America and American Water
Assuming the 90 days horizon Aqua America is expected to under-perform the American Water. But the stock apears to be less risky and, when comparing its historical volatility, Aqua America is 1.36 times less risky than American Water. The stock trades about -0.49 of its potential returns per unit of risk. The American Water Works is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest 12,305 in American Water Works on October 15, 2024 and sell it today you would lose (365.00) from holding American Water Works or give up 2.97% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Aqua America vs. American Water Works
Performance |
| Timeline |
| Aqua America |
| American Water Works |
Aqua America and American Water Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Aqua America and American Water
The main advantage of trading using opposite Aqua America and American Water positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aqua America position performs unexpectedly, American Water 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 American Water will offset losses from the drop in American Water's long position.| Aqua America vs. United Utilities Group | Aqua America vs. Companhia de Saneamento | Aqua America vs. Gelsenwasser AG | Aqua America vs. China Water Affairs |
| American Water vs. Aqua America | American Water vs. United Utilities Group | American Water vs. Companhia de Saneamento | American Water vs. Gelsenwasser AG |
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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.
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