Correlation Between Companhia and Aqua America
Can any of the company-specific risk be diversified away by investing in both Companhia and Aqua America 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 Companhia and Aqua America into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Companhia de Saneamento and Aqua America, you can compare the effects of market volatilities on Companhia and Aqua America 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 Companhia with a short position of Aqua America. Check out your portfolio center. Please also check ongoing floating volatility patterns of Companhia and Aqua America.
Diversification Opportunities for Companhia and Aqua America
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Companhia and Aqua is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Companhia de Saneamento and Aqua America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aqua America and Companhia 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 Companhia de Saneamento are associated (or correlated) with Aqua America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aqua America has no effect on the direction of Companhia i.e., Companhia and Aqua America go up and down completely randomly.
Pair Corralation between Companhia and Aqua America
Assuming the 90 days trading horizon Companhia de Saneamento is expected to generate 1.7 times more return on investment than Aqua America. However, Companhia is 1.7 times more volatile than Aqua America. It trades about -0.01 of its potential returns per unit of risk. Aqua America is currently generating about -0.49 per unit of risk. If you would invest 1,400 in Companhia de Saneamento on October 15, 2024 and sell it today you would lose (10.00) from holding Companhia de Saneamento or give up 0.71% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Companhia de Saneamento vs. Aqua America
Performance |
| Timeline |
| Companhia de Saneamento |
| Aqua America |
Companhia and Aqua America Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Companhia and Aqua America
The main advantage of trading using opposite Companhia and Aqua America positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Companhia position performs unexpectedly, Aqua America 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 Aqua America will offset losses from the drop in Aqua America's long position.| Companhia vs. TITANIUM TRANSPORTGROUP | Companhia vs. Transport International Holdings | Companhia vs. PARKEN Sport Entertainment | Companhia vs. JD SPORTS FASH |
| Aqua America vs. United Utilities Group | Aqua America vs. Companhia de Saneamento | Aqua America vs. Gelsenwasser AG | Aqua America vs. China Water Affairs |
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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.
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