Correlation Between Consolidated Water and First Trust

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

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

Diversification Opportunities for Consolidated Water and First Trust

0.09

Correlation Coefficient

Consolidated Water  First Trust

Significant diversification

The 3 months correlation between Consolidated and First is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Consolidated Water Co and First Trust Water in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Water and Consolidated 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 Consolidated Water Co are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Water has no effect on the direction of Consolidated Water i.e., Consolidated Water and First Trust go up and down completely randomly.

Pair Corralation between Consolidated Water and First Trust

Given the investment horizon of 90 days Consolidated Water Co is expected to generate 1.69 times more return on investment than First Trust. However, Consolidated Water is 1.69 times more volatile than First Trust Water. It trades about 0.09 of its potential returns per unit of risk. First Trust Water is currently generating about 0.04 per unit of risk. If you would invest  2,582  in Consolidated Water Co on December 5, 2024 and sell it today you would earn a total of  128.00  from holding Consolidated Water Co or generate 4.96% return on investment over 90 days.

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

Consolidated Water Co  vs.  First Trust Water

Consolidated Water

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Consolidated Water Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal fundamental indicators, Consolidated Water may actually be approaching a critical reversion point that can send shares even higher in April 2025.

First Trust Water

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust Water has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Etf's forward indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the fund sophisticated investors.

Pair Trading with Consolidated Water and First Trust

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

The idea behind Consolidated Water Co and First Trust 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.