Correlation Between American States and Global Water

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

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

Diversification Opportunities for American States and Global Water

0.81

Correlation Coefficient

American States  Global Water

Very poor diversification

The 3 months correlation between American and Global is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding American States Water and Global Water Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Water Resources and American States 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 States Water are associated (or correlated) with Global Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Water Resources has no effect on the direction of American States i.e., American States and Global Water go up and down completely randomly.

Pair Corralation between American States and Global Water

Considering the 90-day investment horizon American States Water is expected to generate 0.92 times more return on investment than Global Water. However, American States Water is 1.09 times less risky than Global Water. It trades about -0.11 of its potential returns per unit of risk. Global Water Resources is currently generating about -0.14 per unit of risk. If you would invest  8,523  in American States Water on December 1, 2024 and sell it today you would lose (869.00) from holding American States Water or give up 10.2% of portfolio value over 90 days.

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

American States Water  vs.  Global Water Resources

American States Water

Risk-Adjusted Performance

Very Weak

Over the last 90 days American States Water has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Global Water Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days Global Water Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with American States and Global Water

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

The idea behind American States Water and Global Water Resources 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.