Correlation Between American States and SJW Group

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

Diversification Opportunities for American States and SJW Group

0.64

Correlation Coefficient

American States  SJW Group

Poor diversification

The 3 months correlation between American and SJW is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding American States Water and SJW Group Common in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SJW Group Common 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 SJW Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SJW Group Common has no effect on the direction of American States i.e., American States and SJW Group go up and down completely randomly.

Pair Corralation between American States and SJW Group

Considering the 90-day investment horizon American States Water is expected to generate 0.91 times more return on investment than SJW Group. However, American States Water is 1.1 times less risky than SJW Group. It trades about -0.02 of its potential returns per unit of risk. SJW Group Common is currently generating about -0.04 per unit of risk. If you would invest  8,892  in American States Water on December 28, 2024 and sell it today you would lose (1,284) from holding American States Water or give up 14.44% of portfolio value over 90 days.

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

American States Water  vs.  SJW Group Common

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 relatively invariable basic indicators, American States is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

SJW Group Common

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SJW Group Common are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain forward-looking indicators, SJW Group may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with American States and SJW Group

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

The idea behind American States Water and SJW Group Common 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.