Correlation Between American Water and Utilities Fund

Can any of the company-specific risk be diversified away by investing in both American Water and Utilities Fund 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 Utilities Fund 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 Utilities Fund Investor, you can compare the effects of market volatilities on American Water and Utilities Fund 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 Utilities Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Water and Utilities Fund.

Diversification Opportunities for American Water and Utilities Fund

0.57

Correlation Coefficient

American Water  Utilities Fund

Very weak diversification

The 3 months correlation between American and Utilities is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding American Water Works and Utilities Fund Investor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Utilities Fund Investor 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 Utilities Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Utilities Fund Investor has no effect on the direction of American Water i.e., American Water and Utilities Fund go up and down completely randomly.

Pair Corralation between American Water and Utilities Fund

Considering the 90-day investment horizon American Water Works is expected to generate 1.78 times more return on investment than Utilities Fund. However, American Water is 1.78 times more volatile than Utilities Fund Investor. It trades about 0.12 of its potential returns per unit of risk. Utilities Fund Investor is currently generating about 0.07 per unit of risk. If you would invest  12,495  in American Water Works on December 24, 2024 and sell it today you would earn a total of  1,598  from holding American Water Works or generate 12.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

American Water Works  vs.  Utilities Fund Investor

American Water Works

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Water Works are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain basic indicators, American Water disclosed solid returns over the last few months and may actually be approaching a breakup point.

Utilities Fund Investor

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Utilities Fund Investor are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Utilities Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with American Water and Utilities Fund

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

The idea behind American Water Works and Utilities Fund Investor 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 Commodity Directory module to find actively traded commodities issued by global exchanges.