Correlation Between Aqua America and Carsales

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

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

Diversification Opportunities for Aqua America and Carsales

0.73

Correlation Coefficient

Aqua America  Carsales

Poor diversification

The 3 months correlation between Aqua and Carsales is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Aqua America and Carsales in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carsales 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 Carsales. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carsales has no effect on the direction of Aqua America i.e., Aqua America and Carsales go up and down completely randomly.

Pair Corralation between Aqua America and Carsales

Assuming the 90 days horizon Aqua America is expected to under-perform the Carsales. But the stock apears to be less risky and, when comparing its historical volatility, Aqua America is 1.15 times less risky than Carsales. The stock trades about -0.02 of its potential returns per unit of risk. The Carsales is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,300  in Carsales on October 4, 2024 and sell it today you would earn a total of  880.00  from holding Carsales or generate 67.69% return on investment over 90 days.

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

Aqua America  vs.  Carsales

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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Carsales

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Carsales has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Carsales is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Aqua America and Carsales

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

The idea behind Aqua America and Carsales 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.