Correlation Between American Water and Maxim Power

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

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

Diversification Opportunities for American Water and Maxim Power

-0.67

Correlation Coefficient

American Water  Maxim Power

Excellent diversification

The 3 months correlation between American and Maxim is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding American Water Works and Maxim Power Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Maxim Power Corp and American Water 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 American Water Works are associated (or correlated) with Maxim Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Maxim Power Corp has no effect on the direction of American Water i.e., American Water and Maxim Power go up and down completely randomly.

Pair Corralation between American Water and Maxim Power

Considering the 90-day investment horizon American Water is expected to generate 3.89 times less return on investment than Maxim Power. But when comparing it to its historical volatility, American Water Works is 2.08 times less risky than Maxim Power. It trades about 0.02 of its potential returns per unit of risk. Maxim Power Corp is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  350.00  in Maxim Power Corp on November 29, 2024 and sell it today you would earn a total of  11.00  from holding Maxim Power Corp or generate 3.14% return on investment over 90 days.

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

American Water Works  vs.  Maxim Power Corp

American Water Works

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Water Works are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, American Water is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Maxim Power Corp

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Maxim Power Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Maxim Power may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with American Water and Maxim Power

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

The idea behind American Water Works and Maxim Power Corp 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.