Correlation Between California Water and Cadiz

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

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

Diversification Opportunities for California Water and Cadiz

-0.3

Correlation Coefficient

California Water  Cadiz

Very good diversification

The 3 months correlation between California and Cadiz is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding California Water Service and Cadiz Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cadiz Inc and California 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 California Water Service are associated (or correlated) with Cadiz. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cadiz Inc has no effect on the direction of California Water i.e., California Water and Cadiz go up and down completely randomly.

Pair Corralation between California Water and Cadiz

Considering the 90-day investment horizon California Water Service is expected to under-perform the Cadiz. But the stock apears to be less risky and, when comparing its historical volatility, California Water Service is 3.61 times less risky than Cadiz. The stock trades about -0.08 of its potential returns per unit of risk. The Cadiz Inc is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  337.00  in Cadiz Inc on August 30, 2024 and sell it today you would earn a total of  87.00  from holding Cadiz Inc or generate 25.82% return on investment over 90 days.

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

California Water Service  vs.  Cadiz Inc

California Water Service

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days California Water Service has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Cadiz Inc

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cadiz Inc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Cadiz demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with California Water and Cadiz

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

The idea behind California Water Service and Cadiz Inc 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.