Correlation Between California Water and Maxim Power

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

Diversification Opportunities for California Water and Maxim Power

-0.6

Correlation Coefficient

California Water  Maxim Power

Excellent diversification

The 3 months correlation between California and Maxim is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding California Water Service and Maxim Power Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Maxim Power Corp 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 Maxim Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Maxim Power Corp has no effect on the direction of California Water i.e., California Water and Maxim Power go up and down completely randomly.

Pair Corralation between California Water and Maxim Power

Considering the 90-day investment horizon California Water Service is expected to under-perform the Maxim Power. But the stock apears to be less risky and, when comparing its historical volatility, California Water Service is 1.83 times less risky than Maxim Power. The stock trades about -0.08 of its potential returns per unit of risk. The Maxim Power Corp is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  285.00  in Maxim Power Corp on August 31, 2024 and sell it today you would earn a total of  65.00  from holding Maxim Power Corp or generate 22.81% return on investment over 90 days.

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

California Water Service  vs.  Maxim Power Corp

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 comparatively stable basic indicators, California Water is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Maxim Power Corp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Maxim Power Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Maxim Power reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with California Water and Maxim Power

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

The idea behind California Water Service and Maxim Power Corp 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.