Correlation Between China Water and Artesian Resources

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

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

Diversification Opportunities for China Water and Artesian Resources

-0.18

Correlation Coefficient

China Water  Artesian Resources

Good diversification

The 3 months correlation between China and Artesian is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding China Water Affairs and Artesian Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Artesian Resources and China 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 China Water Affairs are associated (or correlated) with Artesian Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Artesian Resources has no effect on the direction of China Water i.e., China Water and Artesian Resources go up and down completely randomly.

Pair Corralation between China Water and Artesian Resources

Assuming the 90 days horizon China Water Affairs is expected to generate 0.2 times more return on investment than Artesian Resources. However, China Water Affairs is 5.0 times less risky than Artesian Resources. It trades about 0.21 of its potential returns per unit of risk. Artesian Resources is currently generating about -0.12 per unit of risk. If you would invest  60.00  in China Water Affairs on February 1, 2024 and sell it today you would earn a total of  1.00  from holding China Water Affairs or generate 1.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.65%
Values	Daily Returns

China Water Affairs  vs.  Artesian Resources

China Water Affairs

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Water Affairs are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, China Water reported solid returns over the last few months and may actually be approaching a breakup point.

Artesian Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Artesian Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Artesian Resources is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with China Water and Artesian Resources

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

The idea behind China Water Affairs and Artesian Resources 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.