Correlation Between Companhia and Consolidated Water
Can any of the company-specific risk be diversified away by investing in both Companhia and Consolidated 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 Consolidated 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 Consolidated Water Co, you can compare the effects of market volatilities on Companhia and Consolidated 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 Consolidated Water. Check out your portfolio center. Please also check ongoing floating volatility patterns of Companhia and Consolidated Water.
Diversification Opportunities for Companhia and Consolidated Water
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Companhia and Consolidated is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Companhia de Saneamento and Consolidated Water Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consolidated Water 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 Consolidated Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consolidated Water has no effect on the direction of Companhia i.e., Companhia and Consolidated Water go up and down completely randomly.
Pair Corralation between Companhia and Consolidated Water
Considering the 90-day investment horizon Companhia is expected to generate 2.05 times less return on investment than Consolidated Water. But when comparing it to its historical volatility, Companhia de Saneamento is 1.13 times less risky than Consolidated Water. It trades about 0.13 of its potential returns per unit of risk. Consolidated Water Co is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest 2,465 in Consolidated Water Co on August 27, 2024 and sell it today you would earn a total of 279.00 from holding Consolidated Water Co or generate 11.32% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Companhia de Saneamento vs. Consolidated Water Co
Performance |
| Timeline |
| Companhia de Saneamento |
| Consolidated Water |
Companhia and Consolidated Water Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Companhia and Consolidated Water
The main advantage of trading using opposite Companhia and Consolidated Water positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Companhia position performs unexpectedly, Consolidated 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 Consolidated Water will offset losses from the drop in Consolidated Water's long position.| Companhia vs. Companhia Paranaense de | Companhia vs. Companhia Energetica de | Companhia vs. Ultrapar Participacoes SA | Companhia vs. Telefonica Brasil SA |
| Consolidated Water vs. SJW Group Common | Consolidated Water vs. Middlesex Water | Consolidated Water vs. California Water Service | Consolidated 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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