Correlation Between American States and California Water
Can any of the company-specific risk be diversified away by investing in both American States and California 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 States and California Water into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American States Water and California Water Service, you can compare the effects of market volatilities on American States and California 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 States with a short position of California Water. Check out your portfolio center. Please also check ongoing floating volatility patterns of American States and California Water.
Diversification Opportunities for American States and California Water
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between American and California is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding American States Water and California Water Service in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on California Water Service and American States 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 States Water are associated (or correlated) with California Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of California Water Service has no effect on the direction of American States i.e., American States and California Water go up and down completely randomly.
Pair Corralation between American States and California Water
Considering the 90-day investment horizon American States Water is expected to under-perform the California Water. But the stock apears to be less risky and, when comparing its historical volatility, American States Water is 1.05 times less risky than California Water. The stock trades about -0.18 of its potential returns per unit of risk. The California Water Service is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest 4,547 in California Water Service on October 23, 2024 and sell it today you would lose (118.00) from holding California Water Service or give up 2.6% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
American States Water vs. California Water Service
Performance |
| Timeline |
| American States Water |
| California Water Service |
American States and California Water Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American States and California Water
The main advantage of trading using opposite American States and California Water positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American States position performs unexpectedly, California 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 California Water will offset losses from the drop in California Water's long position.| American States vs. Middlesex Water | American States vs. SJW Group Common | American States vs. The York Water | American States vs. Artesian Resources |
| California Water vs. SJW Group Common | California Water vs. Artesian Resources | California Water vs. The York Water | California Water 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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