Correlation Between Ultrapar Participacoes and California Water

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

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

Diversification Opportunities for Ultrapar Participacoes and California Water

-0.44

Correlation Coefficient

Ultrapar Participacoes  California Water

Very good diversification

The 3 months correlation between Ultrapar and California is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Ultrapar Participacoes SA 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 Ultrapar Participacoes 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 Ultrapar Participacoes SA 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 Ultrapar Participacoes i.e., Ultrapar Participacoes and California Water go up and down completely randomly.

Pair Corralation between Ultrapar Participacoes and California Water

Considering the 90-day investment horizon Ultrapar Participacoes SA is expected to under-perform the California Water. In addition to that, Ultrapar Participacoes is 2.18 times more volatile than California Water Service. It trades about -0.17 of its total potential returns per unit of risk. California Water Service is currently generating about 0.75 per unit of volatility. If you would invest  4,414  in California Water Service on February 14, 2024 and sell it today you would earn a total of  848.00  from holding California Water Service or generate 19.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Ultrapar Participacoes SA  vs.  California Water Service

Ultrapar Participacoes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ultrapar Participacoes SA has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's technical and fundamental indicators remain relatively invariable which may send shares a bit higher in June 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

California Water Service

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in California Water Service are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, California Water unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ultrapar Participacoes and California Water

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

The idea behind Ultrapar Participacoes SA and California Water Service 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.