Correlation Between Aqua America and Companhia

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

By analyzing existing cross correlation between Aqua America and Companhia de Saneamento, you can compare the effects of market volatilities on Aqua America and Companhia 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 Companhia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aqua America and Companhia.

Diversification Opportunities for Aqua America and Companhia

0.19

Correlation Coefficient

Aqua America  Companhia

Average diversification

The 3 months correlation between Aqua and Companhia is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Aqua America and Companhia de Saneamento in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Companhia de Saneamento 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 Companhia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Companhia de Saneamento has no effect on the direction of Aqua America i.e., Aqua America and Companhia go up and down completely randomly.

Pair Corralation between Aqua America and Companhia

Assuming the 90 days horizon Aqua America is expected to generate 0.38 times more return on investment than Companhia. However, Aqua America is 2.62 times less risky than Companhia. It trades about -0.34 of its potential returns per unit of risk. Companhia de Saneamento is currently generating about -0.36 per unit of risk. If you would invest  3,735  in Aqua America on September 22, 2024 and sell it today you would lose (265.00) from holding Aqua America or give up 7.1% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.65%
Values	Daily Returns

Aqua America  vs.  Companhia de Saneamento

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.

Companhia de Saneamento

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Companhia de Saneamento has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's forward-looking indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Aqua America and Companhia

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

The idea behind Aqua America and Companhia de Saneamento 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.