Correlation Between Middlesex Water and American Water

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

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

Diversification Opportunities for Middlesex Water and American Water

0.86

Correlation Coefficient

Middlesex Water  American Water

Very poor diversification

The 3 months correlation between Middlesex and American is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Middlesex Water 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 Middlesex 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 Middlesex Water 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 Middlesex Water i.e., Middlesex Water and American Water go up and down completely randomly.

Pair Corralation between Middlesex Water and American Water

Given the investment horizon of 90 days Middlesex Water is expected to under-perform the American Water. In addition to that, Middlesex Water is 1.58 times more volatile than American Water Works. It trades about -0.05 of its total potential returns per unit of risk. American Water Works is currently generating about 0.12 per unit of volatility. If you would invest  11,714  in American Water Works on January 25, 2024 and sell it today you would earn a total of  422.00  from holding American Water Works or generate 3.6% return on investment over 90 days.

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

Middlesex Water  vs.  American Water Works

Middlesex Water

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Middlesex Water 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 technical and fundamental indicators remain fairly strong which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

American Water Works

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Water Works has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, American Water is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Middlesex Water and American Water

The main advantage of trading using opposite Middlesex Water and American Water positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Middlesex Water 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.

The idea behind Middlesex Water and American Water Works 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.