Correlation Between China Water and Companhia
Can any of the company-specific risk be diversified away by investing in both China Water and Companhia 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 China Water and Companhia into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Water Affairs and Companhia de Saneamento, you can compare the effects of market volatilities on China Water and Companhia 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 China Water with a short position of Companhia. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Water and Companhia.
Diversification Opportunities for China Water and Companhia
-0.52 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between China and Companhia is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding China Water Affairs and Companhia de Saneamento in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Companhia de Saneamento and China 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 China Water Affairs are associated (or correlated) with Companhia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Companhia de Saneamento has no effect on the direction of China Water i.e., China Water and Companhia go up and down completely randomly.
Pair Corralation between China Water and Companhia
Assuming the 90 days trading horizon China Water Affairs is expected to generate 2.15 times more return on investment than Companhia. However, China Water is 2.15 times more volatile than Companhia de Saneamento. It trades about 0.07 of its potential returns per unit of risk. Companhia de Saneamento is currently generating about 0.04 per unit of risk. If you would invest 35.00 in China Water Affairs on August 29, 2024 and sell it today you would earn a total of 18.00 from holding China Water Affairs or generate 51.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 99.53% |
| Values | Daily Returns |
China Water Affairs vs. Companhia de Saneamento
Performance |
| Timeline |
| China Water Affairs |
| Companhia de Saneamento |
China Water and Companhia Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Water and Companhia
The main advantage of trading using opposite China Water and Companhia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Water position performs unexpectedly, Companhia 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 Companhia will offset losses from the drop in Companhia's long position.| China Water vs. United Utilities Group | China Water vs. Guangdong Investment Limited | China Water vs. TTW Public | China Water vs. Superior Plus Corp |
| Companhia vs. KINGBOARD CHEMICAL | Companhia vs. CHEMICAL INDUSTRIES | Companhia vs. ASURE SOFTWARE | Companhia vs. Sanyo Chemical Industries |
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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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