Correlation Between Global Water and American States
Can any of the company-specific risk be diversified away by investing in both Global Water and American States 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 Global Water and American States into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Global Water Resources and American States Water, you can compare the effects of market volatilities on Global Water and American States 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 Global Water with a short position of American States. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global Water and American States.
Diversification Opportunities for Global Water and American States
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Global and American is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Global Water Resources and American States Water in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American States Water and Global 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 Global Water Resources are associated (or correlated) with American States. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American States Water has no effect on the direction of Global Water i.e., Global Water and American States go up and down completely randomly.
Pair Corralation between Global Water and American States
Given the investment horizon of 90 days Global Water Resources is expected to generate 0.93 times more return on investment than American States. However, Global Water Resources is 1.07 times less risky than American States. It trades about 0.01 of its potential returns per unit of risk. American States Water is currently generating about -0.06 per unit of risk. If you would invest 1,151 in Global Water Resources on November 3, 2024 and sell it today you would lose (1.00) from holding Global Water Resources or give up 0.09% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Global Water Resources vs. American States Water
Performance |
| Timeline |
| Global Water Resources |
| American States Water |
Global Water and American States Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Global Water and American States
The main advantage of trading using opposite Global Water and American States positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global Water position performs unexpectedly, American States 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 States will offset losses from the drop in American States' long position.| Global Water vs. Middlesex Water | Global Water vs. California Water Service | Global Water vs. American States Water | Global Water vs. Artesian Resources |
| American States vs. Middlesex Water | American States vs. SJW Group Common | American States vs. The York Water | American States vs. Artesian Resources |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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