Correlation Between York Water and American Water

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

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

Diversification Opportunities for York Water and American Water

0.91

Correlation Coefficient

York Water  American Water

Almost no diversification

The 3 months correlation between York and American is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding The York Water 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 York 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 The York Water 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 York Water i.e., York Water and American Water go up and down completely randomly.

Pair Corralation between York Water and American Water

Given the investment horizon of 90 days York Water is expected to generate 2.71 times less return on investment than American Water. But when comparing it to its historical volatility, The York Water is 1.12 times less risky than American Water. It trades about 0.07 of its potential returns per unit of risk. American Water Works is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  12,347  in American Water Works on December 28, 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 Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

The York Water  vs.  American Water Works

York Water

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The York Water are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, York Water may actually be approaching a critical reversion point that can send shares even higher in April 2025.

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 York Water and American Water

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