Correlation Between Global Water and Middlesex Water

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

Diversification Opportunities for Global Water and Middlesex Water

-0.48

Correlation Coefficient

Global Water  Middlesex Water

Very good diversification

The 3 months correlation between Global and Middlesex is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Global Water Resources and Middlesex Water in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Middlesex 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 Middlesex Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Middlesex Water has no effect on the direction of Global Water i.e., Global Water and Middlesex Water go up and down completely randomly.

Pair Corralation between Global Water and Middlesex Water

Given the investment horizon of 90 days Global Water Resources is expected to under-perform the Middlesex Water. But the stock apears to be less risky and, when comparing its historical volatility, Global Water Resources is 1.79 times less risky than Middlesex Water. The stock trades about -0.1 of its potential returns per unit of risk. The Middlesex Water is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  5,289  in Middlesex Water on December 30, 2024 and sell it today you would earn a total of  1,059  from holding Middlesex Water or generate 20.02% return on investment over 90 days.

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

Global Water Resources  vs.  Middlesex 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 latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Middlesex Water

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Middlesex Water are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal technical and fundamental indicators, Middlesex Water showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Global Water and Middlesex Water

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

The idea behind Global Water Resources and Middlesex 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.