Correlation Between Cadiz and Consolidated Water

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

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

Diversification Opportunities for Cadiz and Consolidated Water

0.42

Correlation Coefficient

Cadiz  Consolidated Water

Very weak diversification

The 3 months correlation between Cadiz and Consolidated is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Cadiz Inc and Consolidated Water Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consolidated Water and Cadiz 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 Cadiz Inc are associated (or correlated) with Consolidated Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consolidated Water has no effect on the direction of Cadiz i.e., Cadiz and Consolidated Water go up and down completely randomly.

Pair Corralation between Cadiz and Consolidated Water

Given the investment horizon of 90 days Cadiz Inc is expected to generate 2.52 times more return on investment than Consolidated Water. However, Cadiz is 2.52 times more volatile than Consolidated Water Co. It trades about 0.14 of its potential returns per unit of risk. Consolidated Water Co is currently generating about 0.04 per unit of risk. If you would invest  314.00  in Cadiz Inc on September 1, 2024 and sell it today you would earn a total of  130.00  from holding Cadiz Inc or generate 41.4% return on investment over 90 days.

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

Cadiz Inc  vs.  Consolidated Water Co

Cadiz Inc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cadiz Inc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Cadiz demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Consolidated Water

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Consolidated Water Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Consolidated Water is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Cadiz and Consolidated Water

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

The idea behind Cadiz Inc and Consolidated Water Co 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.