Correlation Between American Water and Middlesex Water
Can any of the company-specific risk be diversified away by investing in both American Water and Middlesex 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 American Water and Middlesex Water 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 Middlesex Water, you can compare the effects of market volatilities on American Water and Middlesex 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 American Water with a short position of Middlesex Water. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Water and Middlesex Water.
Diversification Opportunities for American Water and Middlesex Water
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between American and Middlesex is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding American Water Works and Middlesex Water in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Middlesex Water 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 Middlesex Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Middlesex Water has no effect on the direction of American Water i.e., American Water and Middlesex Water go up and down completely randomly.
Pair Corralation between American Water and Middlesex Water
Considering the 90-day investment horizon American Water Works is expected to generate 0.66 times more return on investment than Middlesex Water. However, American Water Works is 1.51 times less risky than Middlesex Water. It trades about 0.02 of its potential returns per unit of risk. Middlesex Water is currently generating about -0.01 per unit of risk. If you would invest 12,018 in American Water Works on November 5, 2024 and sell it today you would earn a total of 446.00 from holding American Water Works or generate 3.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Water Works vs. Middlesex Water
Performance |
| Timeline |
| American Water Works |
| Middlesex Water |
American Water and Middlesex Water Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Water and Middlesex Water
The main advantage of trading using opposite American Water and Middlesex Water positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Water position performs unexpectedly, Middlesex 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 Middlesex Water will offset losses from the drop in Middlesex Water'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 |
| Middlesex Water vs. SJW Group Common | Middlesex Water vs. American States Water | Middlesex Water vs. The York Water | Middlesex Water vs. Artesian Resources |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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