Correlation Between GEELY AUTOMOBILE and American Water

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

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

Diversification Opportunities for GEELY AUTOMOBILE and American Water

-0.54

Correlation Coefficient

GEELY AUTOMOBILE  American Water

Excellent diversification

The 3 months correlation between GEELY and American is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding GEELY AUTOMOBILE and American Water Works in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Water Works and GEELY AUTOMOBILE 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 GEELY AUTOMOBILE are associated (or correlated) with American Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Water Works has no effect on the direction of GEELY AUTOMOBILE i.e., GEELY AUTOMOBILE and American Water go up and down completely randomly.

Pair Corralation between GEELY AUTOMOBILE and American Water

Assuming the 90 days trading horizon GEELY AUTOMOBILE is expected to generate 2.06 times more return on investment than American Water. However, GEELY AUTOMOBILE is 2.06 times more volatile than American Water Works. It trades about 0.12 of its potential returns per unit of risk. American Water Works is currently generating about -0.03 per unit of risk. If you would invest  142.00  in GEELY AUTOMOBILE on October 8, 2024 and sell it today you would earn a total of  34.00  from holding GEELY AUTOMOBILE or generate 23.94% return on investment over 90 days.

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

GEELY AUTOMOBILE  vs.  American Water Works

GEELY AUTOMOBILE

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in GEELY AUTOMOBILE are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, GEELY AUTOMOBILE unveiled solid returns over the last few months and may actually be approaching a breakup point.

American Water Works

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with GEELY AUTOMOBILE and American Water

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

The idea behind GEELY AUTOMOBILE and American Water Works 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.