Correlation Between York Water and Middlesex Water

Can any of the company-specific risk be diversified away by investing in both York Water 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 York Water and Middlesex 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 Middlesex Water, you can compare the effects of market volatilities on York Water 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 York Water with a short position of Middlesex Water. Check out your portfolio center. Please also check ongoing floating volatility patterns of York Water and Middlesex Water.

Diversification Opportunities for York Water and Middlesex Water

0.83

Correlation Coefficient

York Water  Middlesex Water

Very poor diversification

The 3 months correlation between York and Middlesex is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding The York Water and Middlesex Water in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Middlesex Water 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 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 York Water i.e., York Water and Middlesex Water go up and down completely randomly.

Pair Corralation between York Water and Middlesex Water

Given the investment horizon of 90 days York Water is expected to generate 2.73 times less return on investment than Middlesex Water. But when comparing it to its historical volatility, The York Water is 1.74 times less risky than Middlesex Water. It trades about 0.07 of its potential returns per unit of risk. Middlesex Water is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  5,289  in Middlesex Water on December 29, 2024 and sell it today you would earn a total of  906.00  from holding Middlesex Water or generate 17.13% return on investment over 90 days.

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

The York Water  vs.  Middlesex Water

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.

Middlesex Water

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Middlesex Water are ranked lower than 8 (%) 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 York Water and Middlesex Water

The main advantage of trading using opposite York Water and Middlesex Water positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if York Water 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 The York Water 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.