Correlation Between California Water and United Utilities
Can any of the company-specific risk be diversified away by investing in both California Water and United Utilities 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 United Utilities 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 United Utilities Group, you can compare the effects of market volatilities on California Water and United Utilities 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 United Utilities. Check out your portfolio center. Please also check ongoing floating volatility patterns of California Water and United Utilities.
Diversification Opportunities for California Water and United Utilities
0.31 | Correlation Coefficient |
Weak diversification
The 3 months correlation between California and United is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding California Water Service and United Utilities Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Utilities 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 United Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Utilities has no effect on the direction of California Water i.e., California Water and United Utilities go up and down completely randomly.
Pair Corralation between California Water and United Utilities
Considering the 90-day investment horizon California Water Service is expected to under-perform the United Utilities. In addition to that, California Water is 1.02 times more volatile than United Utilities Group. It trades about -0.01 of its total potential returns per unit of risk. United Utilities Group is currently generating about 0.04 per unit of volatility. If you would invest 2,316 in United Utilities Group on August 31, 2024 and sell it today you would earn a total of 551.00 from holding United Utilities Group or generate 23.79% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
California Water Service vs. United Utilities Group
Performance |
| Timeline |
| California Water Service |
| United Utilities |
California Water and United Utilities Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with California Water and United Utilities
The main advantage of trading using opposite California Water and United Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if California Water position performs unexpectedly, United Utilities 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 United Utilities will offset losses from the drop in United Utilities' 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 |
| United Utilities vs. American Water Works | United Utilities vs. Middlesex Water | United Utilities vs. SJW Group Common | United Utilities vs. California Water Service |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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