Correlation Between China Water and Essential Utilities

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

Diversification Opportunities for China Water and Essential Utilities

0.0

Correlation Coefficient

China Water  Essential Utilities

Pay attention - limited upside

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

Pair Corralation between China Water and Essential Utilities

If you would invest  3,591  in Essential Utilities on December 23, 2024 and sell it today you would earn a total of  260.00  from holding Essential Utilities or generate 7.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

China Water Affairs  vs.  Essential Utilities

China Water Affairs

Risk-Adjusted Performance

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.

Essential Utilities

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Essential Utilities are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Essential Utilities may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with China Water and Essential Utilities

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

The idea behind China Water Affairs and Essential Utilities 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.