Correlation Between Middlesex Water and SJW Old

Can any of the company-specific risk be diversified away by investing in both Middlesex 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 Middlesex 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 Middlesex Water and SJW Old, you can compare the effects of market volatilities on Middlesex 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 Middlesex Water with a short position of SJW Old. Check out your portfolio center. Please also check ongoing floating volatility patterns of Middlesex Water and SJW Old.

Diversification Opportunities for Middlesex Water and SJW Old

0.38

Correlation Coefficient

Middlesex Water  SJW Old

Weak diversification

The 3 months correlation between Middlesex and SJW is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Middlesex Water and SJW Old in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SJW Old and Middlesex 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 Middlesex Water 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 Middlesex Water i.e., Middlesex Water and SJW Old go up and down completely randomly.

Pair Corralation between Middlesex Water and SJW Old

Given the investment horizon of 90 days Middlesex Water is expected to under-perform the SJW Old. In addition to that, Middlesex Water is 1.29 times more volatile than SJW Old. It trades about -0.04 of its total potential returns per unit of risk. SJW Old is currently generating about 0.0 per unit of volatility. If you would invest  5,536  in SJW Old on February 21, 2025 and sell it today you would lose (50.00) from holding SJW Old or give up 0.9% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	90.16%
Values	Daily Returns

Middlesex Water  vs.  SJW Old

Middlesex Water

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Middlesex Water are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Middlesex Water showed solid returns over the last few months and may actually be approaching a breakup point.

SJW Old

Risk-Adjusted Performance

Insignificant

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 stable forward-looking indicators, SJW Old is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Middlesex Water and SJW Old

The main advantage of trading using opposite Middlesex Water and SJW Old positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Middlesex 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 Middlesex Water 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.