Correlation Between Artesian Resources and California Water

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

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

Diversification Opportunities for Artesian Resources and California Water

0.7

Correlation Coefficient

Artesian Resources  California Water

Poor diversification

The 3 months correlation between Artesian and California is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Artesian Resources and California Water Service in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on California Water Service and Artesian Resources 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 Artesian Resources are associated (or correlated) with California Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of California Water Service has no effect on the direction of Artesian Resources i.e., Artesian Resources and California Water go up and down completely randomly.

Pair Corralation between Artesian Resources and California Water

Assuming the 90 days horizon Artesian Resources is expected to generate 1.29 times more return on investment than California Water. However, Artesian Resources is 1.29 times more volatile than California Water Service. It trades about -0.02 of its potential returns per unit of risk. California Water Service is currently generating about -0.08 per unit of risk. If you would invest  3,567  in Artesian Resources on September 1, 2024 and sell it today you would lose (93.00) from holding Artesian Resources or give up 2.61% of portfolio value over 90 days.

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

Artesian Resources  vs.  California Water Service

Artesian Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Artesian Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Artesian Resources is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

California Water Service

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Artesian Resources and California Water

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

The idea behind Artesian Resources and California Water Service 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.