Correlation Between California Water and York Water
Can any of the company-specific risk be diversified away by investing in both California Water and York 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 California Water and York Water 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 The York Water, you can compare the effects of market volatilities on California Water and York 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 California Water with a short position of York Water. Check out your portfolio center. Please also check ongoing floating volatility patterns of California Water and York Water.
Diversification Opportunities for California Water and York Water
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between California and York is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding California Water Service and The York Water in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on York Water 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 York Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of York Water has no effect on the direction of California Water i.e., California Water and York Water go up and down completely randomly.
Pair Corralation between California Water and York Water
Considering the 90-day investment horizon California Water Service is expected to generate 0.88 times more return on investment than York Water. However, California Water Service is 1.13 times less risky than York Water. It trades about 0.05 of its potential returns per unit of risk. The York Water is currently generating about 0.02 per unit of risk. If you would invest 5,134 in California Water Service on August 28, 2024 and sell it today you would earn a total of 64.00 from holding California Water Service or generate 1.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
California Water Service vs. The York Water
Performance |
| Timeline |
| California Water Service |
| York Water |
California Water and York Water Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with California Water and York Water
The main advantage of trading using opposite California Water and York Water positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if California Water position performs unexpectedly, York 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 York Water will offset losses from the drop in York Water'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 |
| York Water vs. California Water Service | York Water vs. SJW Group Common | York Water vs. Artesian Resources | York 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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