Correlation Between Guangdong Investment and American Water
Can any of the company-specific risk be diversified away by investing in both Guangdong Investment and American 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 Guangdong Investment and American Water into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Guangdong Investment and American Water Works, you can compare the effects of market volatilities on Guangdong Investment and American 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 Guangdong Investment with a short position of American Water. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangdong Investment and American Water.
Diversification Opportunities for Guangdong Investment and American Water
-0.62 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Guangdong and American is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Investment and American Water Works in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Water Works and Guangdong Investment 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 Guangdong Investment are associated (or correlated) with American Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Water Works has no effect on the direction of Guangdong Investment i.e., Guangdong Investment and American Water go up and down completely randomly.
Pair Corralation between Guangdong Investment and American Water
Assuming the 90 days horizon Guangdong Investment is expected to generate 4.43 times more return on investment than American Water. However, Guangdong Investment is 4.43 times more volatile than American Water Works. It trades about 0.07 of its potential returns per unit of risk. American Water Works is currently generating about -0.05 per unit of risk. If you would invest 2,709 in Guangdong Investment on September 2, 2024 and sell it today you would earn a total of 391.00 from holding Guangdong Investment or generate 14.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 98.44% |
| Values | Daily Returns |
Guangdong Investment vs. American Water Works
Performance |
| Timeline |
| Guangdong Investment |
| American Water Works |
Guangdong Investment and American Water Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Guangdong Investment and American Water
The main advantage of trading using opposite Guangdong Investment and American Water positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Guangdong Investment position performs unexpectedly, American 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 American Water will offset losses from the drop in American Water's long position.| Guangdong Investment vs. American Water Works | Guangdong Investment vs. California Water Service | Guangdong Investment vs. Middlesex Water | Guangdong Investment vs. American States Water |
| American Water vs. California Water Service | American Water vs. Middlesex Water | American Water vs. American States Water | American Water vs. The York 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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