Correlation Between American Water and Artesian Resources
Can any of the company-specific risk be diversified away by investing in both American Water and Artesian Resources 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 Artesian Resources 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 Artesian Resources, you can compare the effects of market volatilities on American Water and Artesian Resources 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 Artesian Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Water and Artesian Resources.
Diversification Opportunities for American Water and Artesian Resources
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between American and Artesian is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding American Water Works and Artesian Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Artesian Resources 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 Artesian Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Artesian Resources has no effect on the direction of American Water i.e., American Water and Artesian Resources go up and down completely randomly.
Pair Corralation between American Water and Artesian Resources
Considering the 90-day investment horizon American Water Works is expected to under-perform the Artesian Resources. But the stock apears to be less risky and, when comparing its historical volatility, American Water Works is 1.68 times less risky than Artesian Resources. The stock trades about -0.03 of its potential returns per unit of risk. The Artesian Resources is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 3,424 in Artesian Resources on August 25, 2024 and sell it today you would earn a total of 9.00 from holding Artesian Resources or generate 0.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Water Works vs. Artesian Resources
Performance |
| Timeline |
| American Water Works |
| Artesian Resources |
American Water and Artesian Resources Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Water and Artesian Resources
The main advantage of trading using opposite American Water and Artesian Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Water position performs unexpectedly, Artesian Resources 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 Artesian Resources will offset losses from the drop in Artesian Resources' 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 |
| Artesian Resources vs. California Water Service | Artesian Resources vs. SJW Group Common | Artesian Resources vs. The York Water | Artesian Resources vs. American States 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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