Correlation Between Middlesex Water and Global Water
Can any of the company-specific risk be diversified away by investing in both Middlesex Water and Global 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 Middlesex Water and Global Water into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Middlesex Water and Global Water Resources, you can compare the effects of market volatilities on Middlesex Water and Global 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 Middlesex Water with a short position of Global Water. Check out your portfolio center. Please also check ongoing floating volatility patterns of Middlesex Water and Global Water.
Diversification Opportunities for Middlesex Water and Global Water
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Middlesex and Global is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Middlesex Water and Global Water Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Water Resources and Middlesex 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 Middlesex Water are associated (or correlated) with Global Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Water Resources has no effect on the direction of Middlesex Water i.e., Middlesex Water and Global Water go up and down completely randomly.
Pair Corralation between Middlesex Water and Global Water
Given the investment horizon of 90 days Middlesex Water is expected to under-perform the Global Water. In addition to that, Middlesex Water is 1.22 times more volatile than Global Water Resources. It trades about -0.02 of its total potential returns per unit of risk. Global Water Resources is currently generating about 0.01 per unit of volatility. 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 |
Middlesex Water vs. Global Water Resources
Performance |
| Timeline |
| Middlesex Water |
| Global Water Resources |
Middlesex Water and Global Water Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Middlesex Water and Global Water
The main advantage of trading using opposite Middlesex Water and Global Water positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Middlesex Water position performs unexpectedly, Global 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 Global Water will offset losses from the drop in Global Water's long position.| Middlesex Water vs. SJW Group Common | Middlesex Water vs. American States Water | Middlesex Water vs. The York Water | Middlesex Water vs. Artesian Resources |
| Global Water vs. Middlesex Water | Global Water vs. California Water Service | Global Water vs. American States Water | Global Water 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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