Correlation Between California Water and Kinetik Holdings

Can any of the company-specific risk be diversified away by investing in both California Water and Kinetik Holdings 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 Kinetik Holdings 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 Kinetik Holdings, you can compare the effects of market volatilities on California Water and Kinetik Holdings 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 Kinetik Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of California Water and Kinetik Holdings.

Diversification Opportunities for California Water and Kinetik Holdings

0.41

Correlation Coefficient

California Water  Kinetik Holdings

Very weak diversification

The 3 months correlation between California and Kinetik is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding California Water Service and Kinetik Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kinetik Holdings 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 Kinetik Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kinetik Holdings has no effect on the direction of California Water i.e., California Water and Kinetik Holdings go up and down completely randomly.

Pair Corralation between California Water and Kinetik Holdings

Considering the 90-day investment horizon California Water is expected to generate 2.47 times less return on investment than Kinetik Holdings. But when comparing it to its historical volatility, California Water Service is 1.29 times less risky than Kinetik Holdings. It trades about 0.01 of its potential returns per unit of risk. Kinetik Holdings is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  3,527  in Kinetik Holdings on February 17, 2024 and sell it today you would earn a total of  488.00  from holding Kinetik Holdings or generate 13.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

California Water Service  vs.  Kinetik Holdings

California Water Service

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in California Water Service are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, California Water may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Kinetik Holdings

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Kinetik Holdings are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Kinetik Holdings disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with California Water and Kinetik Holdings

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

The idea behind California Water Service and Kinetik Holdings 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.