Correlation Between Middlesex Water and Guangdong Investment

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

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

Diversification Opportunities for Middlesex Water and Guangdong Investment

-0.76

Correlation Coefficient

Middlesex Water  Guangdong Investment

Pay attention - limited upside

The 3 months correlation between Middlesex and Guangdong is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Middlesex Water and Guangdong Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Investment and Middlesex 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 Middlesex Water are associated (or correlated) with Guangdong Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Investment has no effect on the direction of Middlesex Water i.e., Middlesex Water and Guangdong Investment go up and down completely randomly.

Pair Corralation between Middlesex Water and Guangdong Investment

Given the investment horizon of 90 days Middlesex Water is expected to under-perform the Guangdong Investment. But the stock apears to be less risky and, when comparing its historical volatility, Middlesex Water is 2.37 times less risky than Guangdong Investment. The stock trades about -0.15 of its potential returns per unit of risk. The Guangdong Investment is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  3,231  in Guangdong Investment on October 10, 2024 and sell it today you would earn a total of  634.00  from holding Guangdong Investment or generate 19.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

Middlesex Water  vs.  Guangdong Investment

Middlesex Water

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Middlesex Water has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Guangdong Investment

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Investment are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Guangdong Investment showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Middlesex Water and Guangdong Investment

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

The idea behind Middlesex Water and Guangdong Investment 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.

Check out your portfolio center.

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.