Correlation Between Cadiz Depositary and Middlesex Water

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

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

Diversification Opportunities for Cadiz Depositary and Middlesex Water

0.32

Correlation Coefficient

Cadiz Depositary  Middlesex Water

Weak diversification

The 3 months correlation between Cadiz and Middlesex is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Cadiz Depositary Shares and Middlesex Water in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Middlesex Water and Cadiz Depositary 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 Depositary Shares are associated (or correlated) with Middlesex Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Middlesex Water has no effect on the direction of Cadiz Depositary i.e., Cadiz Depositary and Middlesex Water go up and down completely randomly.

Pair Corralation between Cadiz Depositary and Middlesex Water

Assuming the 90 days horizon Cadiz Depositary is expected to generate 2.26 times less return on investment than Middlesex Water. But when comparing it to its historical volatility, Cadiz Depositary Shares is 2.71 times less risky than Middlesex Water. It trades about 0.14 of its potential returns per unit of risk. Middlesex Water is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  5,289  in Middlesex Water on December 30, 2024 and sell it today you would earn a total of  1,059  from holding Middlesex Water or generate 20.02% return on investment over 90 days.

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

Cadiz Depositary Shares  vs.  Middlesex Water

Cadiz Depositary Shares

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cadiz Depositary Shares are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak forward indicators, Cadiz Depositary may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Middlesex Water

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Middlesex Water are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal technical and fundamental indicators, Middlesex Water showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cadiz Depositary and Middlesex Water

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

The idea behind Cadiz Depositary Shares and Middlesex 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.

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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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.