Correlation Between Mueller Water and Xylem

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

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

Diversification Opportunities for Mueller Water and Xylem

-0.24

Correlation Coefficient

Mueller Water  Xylem

Very good diversification

The 3 months correlation between Mueller and Xylem is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Mueller Water Products and Xylem Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xylem Inc and Mueller 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 Mueller Water Products are associated (or correlated) with Xylem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xylem Inc has no effect on the direction of Mueller Water i.e., Mueller Water and Xylem go up and down completely randomly.

Pair Corralation between Mueller Water and Xylem

Considering the 90-day investment horizon Mueller Water Products is expected to generate 1.22 times more return on investment than Xylem. However, Mueller Water is 1.22 times more volatile than Xylem Inc. It trades about -0.01 of its potential returns per unit of risk. Xylem Inc is currently generating about -0.14 per unit of risk. If you would invest  2,273  in Mueller Water Products on October 7, 2024 and sell it today you would lose (36.00) from holding Mueller Water Products or give up 1.58% of portfolio value over 90 days.

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

Mueller Water Products  vs.  Xylem Inc

Mueller Water Products

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mueller Water Products has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Mueller Water is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Xylem Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xylem Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest abnormal performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Mueller Water and Xylem

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

The idea behind Mueller Water Products and Xylem Inc 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.