Correlation Between TTW Public and American States

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

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

Diversification Opportunities for TTW Public and American States

-0.32

Correlation Coefficient

TTW Public  American States

Very good diversification

The 3 months correlation between TTW and American is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding TTW Public and American States Water in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American States Water and TTW Public 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 TTW Public are associated (or correlated) with American States. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American States Water has no effect on the direction of TTW Public i.e., TTW Public and American States go up and down completely randomly.

Pair Corralation between TTW Public and American States

Assuming the 90 days trading horizon TTW Public is expected to generate 10.5 times less return on investment than American States. In addition to that, TTW Public is 1.06 times more volatile than American States Water. It trades about 0.01 of its total potential returns per unit of risk. American States Water is currently generating about 0.1 per unit of volatility. If you would invest  6,846  in American States Water on December 11, 2024 and sell it today you would earn a total of  454.00  from holding American States Water or generate 6.63% return on investment over 90 days.

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

TTW Public  vs.  American States Water

TTW Public

Risk-Adjusted Performance

Very Weak

Over the last 90 days TTW Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, TTW Public is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

American States Water

Risk-Adjusted Performance

Very Weak

Over the last 90 days American States Water has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, American States is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with TTW Public and American States

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

The idea behind TTW Public and American States 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.