Correlation Between Charles River and Waters

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

By analyzing existing cross correlation between Charles River Laboratories and Waters, you can compare the effects of market volatilities on Charles River and Waters 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 Charles River with a short position of Waters. Check out your portfolio center. Please also check ongoing floating volatility patterns of Charles River and Waters.

Diversification Opportunities for Charles River and Waters

0.37

Correlation Coefficient

Charles River  Waters

Weak diversification

The 3 months correlation between Charles and Waters is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Charles River Laboratories and Waters in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Waters and Charles River 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 Charles River Laboratories are associated (or correlated) with Waters. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Waters has no effect on the direction of Charles River i.e., Charles River and Waters go up and down completely randomly.

Pair Corralation between Charles River and Waters

Considering the 90-day investment horizon Charles River is expected to generate 2.67 times less return on investment than Waters. But when comparing it to its historical volatility, Charles River Laboratories is 1.14 times less risky than Waters. It trades about 0.03 of its potential returns per unit of risk. Waters is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  33,975  in Waters on September 1, 2024 and sell it today you would earn a total of  4,497  from holding Waters or generate 13.24% return on investment over 90 days.

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

Charles River Laboratories  vs.  Waters

Charles River Labora

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Charles River Laboratories are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Charles River is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Waters

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Waters are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, Waters unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Charles River and Waters

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

The idea behind Charles River Laboratories and Waters 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.