Correlation Between American Water and Allete
Can any of the company-specific risk be diversified away by investing in both American Water and Allete 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 American Water and Allete into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Water Works and Allete Inc, you can compare the effects of market volatilities on American Water and Allete 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 American Water with a short position of Allete. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Water and Allete.
Diversification Opportunities for American Water and Allete
-0.62 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between American and Allete is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding American Water Works and Allete Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allete Inc and American 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 American Water Works are associated (or correlated) with Allete. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allete Inc has no effect on the direction of American Water i.e., American Water and Allete go up and down completely randomly.
Pair Corralation between American Water and Allete
Considering the 90-day investment horizon American Water Works is expected to under-perform the Allete. In addition to that, American Water is 4.58 times more volatile than Allete Inc. It trades about -0.09 of its total potential returns per unit of risk. Allete Inc is currently generating about 0.15 per unit of volatility. If you would invest 6,267 in Allete Inc on November 2, 2024 and sell it today you would earn a total of 301.00 from holding Allete Inc or generate 4.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Water Works vs. Allete Inc
Performance |
| Timeline |
| American Water Works |
| Allete Inc |
American Water and Allete Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Water and Allete
The main advantage of trading using opposite American Water and Allete positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Water position performs unexpectedly, Allete 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 Allete will offset losses from the drop in Allete's long position.| American Water vs. California Water Service | American Water vs. Middlesex Water | American Water vs. American States Water | American Water vs. The York Water |
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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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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