Correlation Between Global Water and American States

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

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

Diversification Opportunities for Global Water and American States

0.83

Correlation Coefficient

Global Water  American States

Very poor diversification

The 3 months correlation between Global and American is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Global Water Resources 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 Global 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 Global Water Resources 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 Global Water i.e., Global Water and American States go up and down completely randomly.

Pair Corralation between Global Water and American States

Given the investment horizon of 90 days Global Water Resources is expected to under-perform the American States. In addition to that, Global Water is 1.1 times more volatile than American States Water. It trades about -0.16 of its total potential returns per unit of risk. American States Water is currently generating about -0.11 per unit of volatility. If you would invest  8,477  in American States Water on November 29, 2024 and sell it today you would lose (873.00) from holding American States Water or give up 10.3% of portfolio value over 90 days.

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

Global Water Resources  vs.  American States Water

Global Water Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days Global Water Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in March 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

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. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Global Water and American States

The main advantage of trading using opposite Global Water and American States positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global Water 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 Global Water Resources 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.