Correlation Between Aris Water and American Water
Can any of the company-specific risk be diversified away by investing in both Aris Water 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 Aris Water and American Water into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Aris Water Solutions and American Water Works, you can compare the effects of market volatilities on Aris Water 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 Aris Water with a short position of American Water. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aris Water and American Water.
Diversification Opportunities for Aris Water and American Water
-0.55 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Aris and American is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Aris Water Solutions 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 Aris Water 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 Aris Water Solutions 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 Aris Water i.e., Aris Water and American Water go up and down completely randomly.
Pair Corralation between Aris Water and American Water
Given the investment horizon of 90 days Aris Water Solutions is expected to generate 2.77 times more return on investment than American Water. However, Aris Water is 2.77 times more volatile than American Water Works. It trades about 0.05 of its potential returns per unit of risk. American Water Works is currently generating about 0.0 per unit of risk. If you would invest 1,529 in Aris Water Solutions on August 24, 2024 and sell it today you would earn a total of 1,214 from holding Aris Water Solutions or generate 79.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Aris Water Solutions vs. American Water Works
Performance |
| Timeline |
| Aris Water Solutions |
| American Water Works |
Aris Water and American Water Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Aris Water and American Water
The main advantage of trading using opposite Aris Water and American Water positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aris Water 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.| Aris Water vs. Middlesex Water | Aris Water vs. California Water Service | Aris Water vs. Global Water Resources | Aris Water vs. American States Water |
| American Water vs. California Water Service | American Water vs. Middlesex Water | American Water vs. American States Water | American Water vs. The York Water |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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