Correlation Between EuropaCorp and American States

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

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

Diversification Opportunities for EuropaCorp and American States

-0.67

Correlation Coefficient

EuropaCorp  American States

Excellent diversification

The 3 months correlation between EuropaCorp and American is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding EuropaCorp and American States Water in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American States Water and EuropaCorp 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 EuropaCorp are associated (or correlated) with American States. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American States Water has no effect on the direction of EuropaCorp i.e., EuropaCorp and American States go up and down completely randomly.

Pair Corralation between EuropaCorp and American States

Assuming the 90 days horizon EuropaCorp is expected to under-perform the American States. In addition to that, EuropaCorp is 2.35 times more volatile than American States Water. It trades about -0.14 of its total potential returns per unit of risk. American States Water is currently generating about 0.02 per unit of volatility. If you would invest  7,466  in American States Water on September 23, 2024 and sell it today you would earn a total of  79.00  from holding American States Water or generate 1.06% return on investment over 90 days.

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

EuropaCorp  vs.  American States Water

EuropaCorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EuropaCorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

American States Water

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American States Water are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, American States is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with EuropaCorp and American States

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

The idea behind EuropaCorp and American States 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.