Correlation Between American Water and Spire

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

Diversification Opportunities for American Water and Spire

-0.37

Correlation Coefficient

American Water  Spire

Very good diversification

The 3 months correlation between American and Spire is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding American Water Works and Spire Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spire Inc 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 Spire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spire Inc has no effect on the direction of American Water i.e., American Water and Spire go up and down completely randomly.

Pair Corralation between American Water and Spire

Considering the 90-day investment horizon American Water Works is expected to under-perform the Spire. In addition to that, American Water is 2.75 times more volatile than Spire Inc. It trades about -0.14 of its total potential returns per unit of risk. Spire Inc is currently generating about 0.03 per unit of volatility. If you would invest  2,444  in Spire Inc on September 12, 2024 and sell it today you would earn a total of  20.00  from holding Spire Inc or generate 0.82% return on investment over 90 days.

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

American Water Works  vs.  Spire Inc

American Water Works

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Water Works has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Spire Inc

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Spire Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Spire is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with American Water and Spire

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

The idea behind American Water Works and Spire Inc 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.