Correlation Between California Water and Guangdong Investment
Can any of the company-specific risk be diversified away by investing in both California Water and Guangdong Investment 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 California Water and Guangdong Investment into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between California Water Service and Guangdong Investment, you can compare the effects of market volatilities on California Water and Guangdong Investment 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 California Water with a short position of Guangdong Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of California Water and Guangdong Investment.
Diversification Opportunities for California Water and Guangdong Investment
-0.66 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between California and Guangdong is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding California Water Service and Guangdong Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Investment and California 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 California Water Service are associated (or correlated) with Guangdong Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Investment has no effect on the direction of California Water i.e., California Water and Guangdong Investment go up and down completely randomly.
Pair Corralation between California Water and Guangdong Investment
Considering the 90-day investment horizon California Water Service is expected to under-perform the Guangdong Investment. But the stock apears to be less risky and, when comparing its historical volatility, California Water Service is 2.31 times less risky than Guangdong Investment. The stock trades about -0.02 of its potential returns per unit of risk. The Guangdong Investment is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest 4,428 in Guangdong Investment on September 2, 2024 and sell it today you would lose (1,328) from holding Guangdong Investment or give up 29.99% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 94.35% |
| Values | Daily Returns |
California Water Service vs. Guangdong Investment
Performance |
| Timeline |
| California Water Service |
| Guangdong Investment |
California Water and Guangdong Investment Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with California Water and Guangdong Investment
The main advantage of trading using opposite California Water and Guangdong Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if California Water position performs unexpectedly, Guangdong Investment 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 Guangdong Investment will offset losses from the drop in Guangdong Investment's long position.| California Water vs. SJW Group Common | California Water vs. Artesian Resources | California Water vs. The York Water | California Water vs. American States Water |
| Guangdong Investment vs. American Water Works | Guangdong Investment vs. California Water Service | Guangdong Investment vs. Middlesex Water | Guangdong Investment 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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