Correlation Between Aqua America and American States

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

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

Diversification Opportunities for Aqua America and American States

0.91

Correlation Coefficient

Aqua America  American States

Almost no diversification

The 3 months correlation between Aqua and American is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Aqua America 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 Aqua America 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 Aqua America 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 Aqua America i.e., Aqua America and American States go up and down completely randomly.

Pair Corralation between Aqua America and American States

Assuming the 90 days horizon Aqua America is expected to under-perform the American States. But the stock apears to be less risky and, when comparing its historical volatility, Aqua America is 1.39 times less risky than American States. The stock trades about -0.34 of its potential returns per unit of risk. The American States Water is currently generating about -0.18 of returns per unit of risk over similar time horizon. If you would invest  7,960  in American States Water on September 22, 2024 and sell it today you would lose (415.00) from holding American States Water or give up 5.21% of portfolio value over 90 days.

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

Aqua America  vs.  American States Water

Aqua America

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Aqua America are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Aqua America is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

American States Water

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American States Water are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, American States is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Aqua America and American States

The main advantage of trading using opposite Aqua America and American States positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aqua America 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 Aqua America 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.