Correlation Between Pure Cycle and York Water

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

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

Diversification Opportunities for Pure Cycle and York Water

-0.46

Correlation Coefficient

Pure Cycle  York Water

Very good diversification

The 3 months correlation between Pure and York is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Pure Cycle and The York Water in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on York Water and Pure Cycle 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 Pure Cycle are associated (or correlated) with York Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of York Water has no effect on the direction of Pure Cycle i.e., Pure Cycle and York Water go up and down completely randomly.

Pair Corralation between Pure Cycle and York Water

Given the investment horizon of 90 days Pure Cycle is expected to generate 1.86 times more return on investment than York Water. However, Pure Cycle is 1.86 times more volatile than The York Water. It trades about 0.24 of its potential returns per unit of risk. The York Water is currently generating about -0.07 per unit of risk. If you would invest  1,025  in Pure Cycle on August 31, 2024 and sell it today you would earn a total of  420.00  from holding Pure Cycle or generate 40.98% return on investment over 90 days.

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

Pure Cycle  vs.  The York Water

Pure Cycle

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pure Cycle are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Pure Cycle displayed solid returns over the last few months and may actually be approaching a breakup point.

York Water

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The York Water has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, York Water is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Pure Cycle and York Water

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

The idea behind Pure Cycle and The York 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.

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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.