Correlation Between Essential Utilities and California Water
Can any of the company-specific risk be diversified away by investing in both Essential Utilities and California 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 Essential Utilities and California Water into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Essential Utilities and California Water Service, you can compare the effects of market volatilities on Essential Utilities and California 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 Essential Utilities with a short position of California Water. Check out your portfolio center. Please also check ongoing floating volatility patterns of Essential Utilities and California Water.
Diversification Opportunities for Essential Utilities and California Water
0.09 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Essential and California is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Essential Utilities and California Water Service in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on California Water Service and Essential Utilities 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 Essential Utilities are associated (or correlated) with California Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of California Water Service has no effect on the direction of Essential Utilities i.e., Essential Utilities and California Water go up and down completely randomly.
Pair Corralation between Essential Utilities and California Water
Given the investment horizon of 90 days Essential Utilities is expected to generate 0.95 times more return on investment than California Water. However, Essential Utilities is 1.05 times less risky than California Water. It trades about 0.11 of its potential returns per unit of risk. California Water Service is currently generating about -0.02 per unit of risk. If you would invest 3,884 in Essential Utilities on August 29, 2024 and sell it today you would earn a total of 120.00 from holding Essential Utilities or generate 3.09% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Essential Utilities vs. California Water Service
Performance |
| Timeline |
| Essential Utilities |
| California Water Service |
Essential Utilities and California Water Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Essential Utilities and California Water
The main advantage of trading using opposite Essential Utilities and California Water positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Essential Utilities position performs unexpectedly, California 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 California Water will offset losses from the drop in California Water's long position.| Essential Utilities vs. American States Water | Essential Utilities vs. California Water Service | Essential Utilities vs. Consolidated Water Co | Essential Utilities vs. SJW Group Common |
| California Water vs. SJW Group Common | California Water vs. Artesian Resources | California Water vs. The York Water | California Water vs. American States 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 CEOs Directory module to screen CEOs from public companies around the world.
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