Correlation Between China Water and American Water

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

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

Diversification Opportunities for China Water and American Water

0.0

Correlation Coefficient

China Water  American Water

Pay attention - limited upside

The 3 months correlation between China and American is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding China Water Affairs and American Water Works in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Water Works and China Water 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 China Water Affairs are associated (or correlated) with American Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Water Works has no effect on the direction of China Water i.e., China Water and American Water go up and down completely randomly.

Pair Corralation between China Water and American Water

If you would invest  71.00  in China Water Affairs on October 6, 2024 and sell it today you would earn a total of  0.00  from holding China Water Affairs or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	5.0%
Values	Daily Returns

China Water Affairs  vs.  American Water Works

China Water Affairs

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Water Affairs has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, China Water is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

American Water Works

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Water Works has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with China Water and American Water

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

The idea behind China Water Affairs and American Water Works 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.