Correlation Between California Water and Franklin Utilities

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

Diversification Opportunities for California Water and Franklin Utilities

0.28

Correlation Coefficient

California Water  Franklin Utilities

Modest diversification

The 3 months correlation between California and Franklin is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding California Water Service and Franklin Utilities Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Utilities 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 Franklin Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Utilities has no effect on the direction of California Water i.e., California Water and Franklin Utilities go up and down completely randomly.

Pair Corralation between California Water and Franklin Utilities

Considering the 90-day investment horizon California Water Service is expected to generate 1.55 times more return on investment than Franklin Utilities. However, California Water is 1.55 times more volatile than Franklin Utilities Fund. It trades about 0.07 of its potential returns per unit of risk. Franklin Utilities Fund is currently generating about 0.05 per unit of risk. If you would invest  4,535  in California Water Service on December 30, 2024 and sell it today you would earn a total of  290.00  from holding California Water Service or generate 6.39% return on investment over 90 days.

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

California Water Service  vs.  Franklin Utilities Fund

California Water Service

Risk-Adjusted Performance

Modest

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

Franklin Utilities

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Utilities Fund are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Franklin Utilities is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with California Water and Franklin Utilities

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

The idea behind California Water Service and Franklin Utilities Fund 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .