Correlation Between Forest Water and Cleanaway

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

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

Diversification Opportunities for Forest Water and Cleanaway

0.8

Correlation Coefficient

Forest Water  Cleanaway

Very poor diversification

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

Pair Corralation between Forest Water and Cleanaway

Assuming the 90 days trading horizon Forest Water Environmental is expected to generate 3.84 times more return on investment than Cleanaway. However, Forest Water is 3.84 times more volatile than Cleanaway Co. It trades about -0.02 of its potential returns per unit of risk. Cleanaway Co is currently generating about -0.11 per unit of risk. If you would invest  3,640  in Forest Water Environmental on October 8, 2024 and sell it today you would lose (45.00) from holding Forest Water Environmental or give up 1.24% of portfolio value over 90 days.

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

Forest Water Environmental  vs.  Cleanaway Co

Forest Water Environ

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Forest Water Environmental 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 basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Cleanaway

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cleanaway Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Cleanaway is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Forest Water and Cleanaway

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

The idea behind Forest Water Environmental and Cleanaway Co 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.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.