Correlation Between Maxim Power and American Water

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

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

Diversification Opportunities for Maxim Power and American Water

-0.81

Correlation Coefficient

Maxim Power  American Water

Pay attention - limited upside

The 3 months correlation between Maxim and American is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding Maxim Power Corp 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 Maxim Power 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 Maxim Power Corp 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 Maxim Power i.e., Maxim Power and American Water go up and down completely randomly.

Pair Corralation between Maxim Power and American Water

Assuming the 90 days horizon Maxim Power Corp is expected to under-perform the American Water. In addition to that, Maxim Power is 2.09 times more volatile than American Water Works. It trades about -0.05 of its total potential returns per unit of risk. American Water Works is currently generating about 0.16 per unit of volatility. If you would invest  12,347  in American Water Works on December 29, 2024 and sell it today you would earn a total of  2,277  from holding American Water Works or generate 18.44% return on investment over 90 days.

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

Maxim Power Corp  vs.  American Water Works

Maxim Power Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Maxim Power Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

American Water Works

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Water Works are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain basic indicators, American Water disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Maxim Power and American Water

The main advantage of trading using opposite Maxim Power and American Water positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Maxim Power 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 Maxim Power Corp 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.