Correlation Between SJW Group and Middlesex Water

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

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

Diversification Opportunities for SJW Group and Middlesex Water

0.65

Correlation Coefficient

SJW Group  Middlesex Water

Poor diversification

The 3 months correlation between SJW and Middlesex is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding SJW Group Common and Middlesex Water in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Middlesex Water and SJW Group 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 SJW Group Common 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 SJW Group i.e., SJW Group and Middlesex Water go up and down completely randomly.

Pair Corralation between SJW Group and Middlesex Water

Considering the 90-day investment horizon SJW Group is expected to generate 2.11 times less return on investment than Middlesex Water. But when comparing it to its historical volatility, SJW Group Common is 1.49 times less risky than Middlesex Water. It trades about 0.09 of its potential returns per unit of risk. 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 28, 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 Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

SJW Group Common  vs.  Middlesex Water

SJW Group Common

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SJW Group Common are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain forward-looking indicators, SJW Group may actually be approaching a critical reversion point that can send shares even higher in April 2025.

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 SJW Group and Middlesex Water

The main advantage of trading using opposite SJW Group and Middlesex Water positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SJW Group 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 SJW Group Common 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.