Correlation Between Aqua America and Schnitzer Steel

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

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

Diversification Opportunities for Aqua America and Schnitzer Steel

0.69

Correlation Coefficient

Aqua America  Schnitzer Steel

Poor diversification

The 3 months correlation between Aqua and Schnitzer is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Aqua America and Schnitzer Steel Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schnitzer Steel Indu 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 Schnitzer Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schnitzer Steel Indu has no effect on the direction of Aqua America i.e., Aqua America and Schnitzer Steel go up and down completely randomly.

Pair Corralation between Aqua America and Schnitzer Steel

Assuming the 90 days horizon Aqua America is expected to generate 0.48 times more return on investment than Schnitzer Steel. However, Aqua America is 2.1 times less risky than Schnitzer Steel. It trades about -0.02 of its potential returns per unit of risk. Schnitzer Steel Industries is currently generating about -0.04 per unit of risk. If you would invest  3,978  in Aqua America on October 11, 2024 and sell it today you would lose (605.00) from holding Aqua America or give up 15.21% of portfolio value over 90 days.

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

Aqua America  vs.  Schnitzer Steel Industries

Aqua America

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aqua America has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Aqua America is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Schnitzer Steel Indu

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Schnitzer Steel Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Aqua America and Schnitzer Steel

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

The idea behind Aqua America and Schnitzer Steel Industries 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.