Correlation Between American Water and York Water

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

Diversification Opportunities for American Water and York Water

0.74

Correlation Coefficient

American Water  York Water

Poor diversification

The 3 months correlation between American and York is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding American Water Works and The York Water in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on York Water 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 York Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of York Water has no effect on the direction of American Water i.e., American Water and York Water go up and down completely randomly.

Pair Corralation between American Water and York Water

Considering the 90-day investment horizon American Water Works is expected to generate 0.9 times more return on investment than York Water. However, American Water Works is 1.11 times less risky than York Water. It trades about -0.05 of its potential returns per unit of risk. The York Water is currently generating about -0.07 per unit of risk. If you would invest  14,267  in American Water Works on September 1, 2024 and sell it today you would lose (573.00) from holding American Water Works or give up 4.02% of portfolio value over 90 days.

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

American Water Works  vs.  The York Water

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 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.

York Water

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The York Water has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, York Water is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with American Water and York Water

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

The idea behind American Water Works and The York Water 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.