Correlation Between Global Water and SJW Old

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

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

Diversification Opportunities for Global Water and SJW Old

-0.22

Correlation Coefficient

Global Water  SJW Old

Very good diversification

The 3 months correlation between Global and SJW is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Global Water Resources and SJW Old in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SJW Old and Global 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 Global Water Resources are associated (or correlated) with SJW Old. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SJW Old has no effect on the direction of Global Water i.e., Global Water and SJW Old go up and down completely randomly.

Pair Corralation between Global Water and SJW Old

Given the investment horizon of 90 days Global Water Resources is expected to generate 1.23 times more return on investment than SJW Old. However, Global Water is 1.23 times more volatile than SJW Old. It trades about -0.01 of its potential returns per unit of risk. SJW Old is currently generating about -0.02 per unit of risk. If you would invest  1,207  in Global Water Resources on March 24, 2025 and sell it today you would lose (173.00) from holding Global Water Resources or give up 14.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	93.54%
Values	Daily Returns

Global Water Resources  vs.  SJW Old

Global Water Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days Global Water Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Global Water is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

SJW Old

Risk-Adjusted Performance

OK

Over the last 90 days SJW Old has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly uncertain forward-looking indicators, SJW Old showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Global Water and SJW Old

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

The idea behind Global Water Resources and SJW Old 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.