Correlation Between American States and Aqua America

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

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

Diversification Opportunities for American States and Aqua America

0.91

Correlation Coefficient

American States  Aqua America

Almost no diversification

The 3 months correlation between American and Aqua is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding American States Water and Aqua America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aqua America and American States 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 American States Water are associated (or correlated) with Aqua America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aqua America has no effect on the direction of American States i.e., American States and Aqua America go up and down completely randomly.

Pair Corralation between American States and Aqua America

Assuming the 90 days horizon American States is expected to generate 2.69 times less return on investment than Aqua America. But when comparing it to its historical volatility, American States Water is 1.07 times less risky than Aqua America. It trades about 0.02 of its potential returns per unit of risk. Aqua America is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  3,341  in Aqua America on September 23, 2024 and sell it today you would earn a total of  129.00  from holding Aqua America or generate 3.86% return on investment over 90 days.

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

American States Water  vs.  Aqua America

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.

Aqua America

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Aqua America are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Aqua America is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with American States and Aqua America

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

The idea behind American States Water and Aqua America 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.