Correlation Between Companhia and American Water
Can any of the company-specific risk be diversified away by investing in both Companhia 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 Companhia and American Water 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 American Water Works, you can compare the effects of market volatilities on Companhia 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 Companhia with a short position of American Water. Check out your portfolio center. Please also check ongoing floating volatility patterns of Companhia and American Water.
Diversification Opportunities for Companhia and American Water
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Companhia and American is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Companhia de Saneamento 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 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 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 Companhia i.e., Companhia and American Water go up and down completely randomly.
Pair Corralation between Companhia and American Water
Assuming the 90 days trading horizon Companhia de Saneamento is expected to generate 1.25 times more return on investment than American Water. However, Companhia is 1.25 times more volatile than American Water Works. It trades about -0.01 of its potential returns per unit of risk. American Water Works is currently generating about -0.11 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. American Water Works
Performance |
| Timeline |
| Companhia de Saneamento |
| American Water Works |
Companhia and American Water Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Companhia and American Water
The main advantage of trading using opposite Companhia and American Water positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Companhia 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.| Companhia vs. TITANIUM TRANSPORTGROUP | Companhia vs. Transport International Holdings | Companhia vs. PARKEN Sport Entertainment | Companhia vs. JD SPORTS FASH |
| American Water vs. Aqua America | American Water vs. United Utilities Group | American Water vs. Companhia de Saneamento | American Water vs. Gelsenwasser AG |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
Other Complementary Tools
| Volatility Analysis Get historical volatility and risk analysis based on latest market data | |
| Analyst Advice Analyst recommendations and target price estimates broken down by several categories | |
| Stocks Directory Find actively traded stocks across global markets | |
| Idea Optimizer Use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio | |
| Economic Indicators Top statistical indicators that provide insights into how an economy is performing |