Correlation Between California Water and Essential Utilities

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

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

Diversification Opportunities for California Water and Essential Utilities

0.0

Correlation Coefficient

California Water  Essential Utilities

Pay attention - limited upside

The 3 months correlation between California and Essential is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding California Water Service and Essential Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essential Utilities and California 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 California Water Service are associated (or correlated) with Essential Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essential Utilities has no effect on the direction of California Water i.e., California Water and Essential Utilities go up and down completely randomly.

Pair Corralation between California Water and Essential Utilities

Considering the 90-day investment horizon California Water is expected to generate 1.55 times less return on investment than Essential Utilities. In addition to that, California Water is 1.07 times more volatile than Essential Utilities. It trades about 0.03 of its total potential returns per unit of risk. Essential Utilities is currently generating about 0.05 per unit of volatility. If you would invest  3,718  in Essential Utilities on August 30, 2024 and sell it today you would earn a total of  286.00  from holding Essential Utilities or generate 7.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

California Water Service  vs.  Essential Utilities

California Water Service

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days California Water Service has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Essential Utilities

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Essential Utilities are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Essential Utilities is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with California Water and Essential Utilities

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

The idea behind California Water Service and Essential Utilities 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.

Check out your portfolio center.

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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..