Correlation Between Consolidated Water and American States

Can any of the company-specific risk be diversified away by investing in both Consolidated Water and American States 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 Consolidated Water and American States into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Consolidated Water Co and American States Water, you can compare the effects of market volatilities on Consolidated Water and American States 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 Consolidated Water with a short position of American States. Check out your portfolio center. Please also check ongoing floating volatility patterns of Consolidated Water and American States.

Diversification Opportunities for Consolidated Water and American States

0.8

Correlation Coefficient

Consolidated Water  American States

Very poor diversification

The 3 months correlation between Consolidated and American is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Consolidated Water Co and American States Water in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American States Water and Consolidated Water 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 Consolidated Water Co are associated (or correlated) with American States. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American States Water has no effect on the direction of Consolidated Water i.e., Consolidated Water and American States go up and down completely randomly.

Pair Corralation between Consolidated Water and American States

Given the investment horizon of 90 days Consolidated Water Co is expected to under-perform the American States. In addition to that, Consolidated Water is 1.55 times more volatile than American States Water. It trades about -0.04 of its total potential returns per unit of risk. American States Water is currently generating about 0.19 per unit of volatility. If you would invest  6,955  in American States Water on February 3, 2024 and sell it today you would earn a total of  324.00  from holding American States Water or generate 4.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Consolidated Water Co  vs.  American States Water

Consolidated Water

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Consolidated Water Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in June 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

American States Water

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American States Water has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, American States is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Consolidated Water and American States

The main advantage of trading using opposite Consolidated Water and American States positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Consolidated Water position performs unexpectedly, American States 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 States will offset losses from the drop in American States' long position.

The idea behind Consolidated Water Co and American States Water pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.