Correlation Between California Water and York Water

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

Diversification Opportunities for California Water and York Water

0.9

Correlation Coefficient

California Water  York Water

Almost no diversification

The 3 months correlation between California and York is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding California Water Service and The York Water in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on York Water 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 York Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of York Water has no effect on the direction of California Water i.e., California Water and York Water go up and down completely randomly.

Pair Corralation between California Water and York Water

Considering the 90-day investment horizon California Water is expected to generate 2.01 times less return on investment than York Water. But when comparing it to its historical volatility, California Water Service is 1.0 times less risky than York Water. It trades about 0.03 of its potential returns per unit of risk. The York Water is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  3,269  in The York Water on December 29, 2024 and sell it today you would earn a total of  197.00  from holding The York Water or generate 6.03% return on investment over 90 days.

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

California Water Service  vs.  The York Water

California Water Service

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in California Water Service are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

York Water

Risk-Adjusted Performance

Modest

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

Pair Trading with California Water and York Water

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

The idea behind California Water Service and The York 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.