Correlation Between Essential Utilities and Middlesex Water
Can any of the company-specific risk be diversified away by investing in both Essential Utilities and Middlesex 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 Middlesex 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 Middlesex Water, you can compare the effects of market volatilities on Essential Utilities and Middlesex 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 Middlesex Water. Check out your portfolio center. Please also check ongoing floating volatility patterns of Essential Utilities and Middlesex Water.
Diversification Opportunities for Essential Utilities and Middlesex Water
0.4 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Essential and Middlesex is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Essential Utilities and Middlesex Water in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Middlesex Water 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 Middlesex Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Middlesex Water has no effect on the direction of Essential Utilities i.e., Essential Utilities and Middlesex Water go up and down completely randomly.
Pair Corralation between Essential Utilities and Middlesex Water
Given the investment horizon of 90 days Essential Utilities is expected to generate 1.32 times less return on investment than Middlesex Water. But when comparing it to its historical volatility, Essential Utilities is 1.69 times less risky than Middlesex Water. It trades about 0.11 of its potential returns per unit of risk. Middlesex Water is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 6,412 in Middlesex Water on August 29, 2024 and sell it today you would earn a total of 244.00 from holding Middlesex Water or generate 3.81% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Essential Utilities vs. Middlesex Water
Performance |
| Timeline |
| Essential Utilities |
| Middlesex Water |
Essential Utilities and Middlesex Water Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Essential Utilities and Middlesex Water
The main advantage of trading using opposite Essential Utilities and Middlesex Water positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Essential Utilities position performs unexpectedly, Middlesex 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 Middlesex Water will offset losses from the drop in Middlesex 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 |
| Middlesex Water vs. SJW Group Common | Middlesex Water vs. American States Water | Middlesex Water vs. The York Water | Middlesex 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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