Correlation Between American States and Companhia Paranaense

Can any of the company-specific risk be diversified away by investing in both American States and Companhia Paranaense 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 American States and Companhia Paranaense into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between American States Water and Companhia Paranaense de, you can compare the effects of market volatilities on American States and Companhia Paranaense 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 American States with a short position of Companhia Paranaense. Check out your portfolio center. Please also check ongoing floating volatility patterns of American States and Companhia Paranaense.

Diversification Opportunities for American States and Companhia Paranaense

-0.49

Correlation Coefficient

American States  Companhia Paranaense

Very good diversification

The 3 months correlation between American and Companhia is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding American States Water and Companhia Paranaense de in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Companhia Paranaense and American States 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 American States Water are associated (or correlated) with Companhia Paranaense. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Companhia Paranaense has no effect on the direction of American States i.e., American States and Companhia Paranaense go up and down completely randomly.

Pair Corralation between American States and Companhia Paranaense

Considering the 90-day investment horizon American States Water is expected to generate 0.68 times more return on investment than Companhia Paranaense. However, American States Water is 1.46 times less risky than Companhia Paranaense. It trades about -0.02 of its potential returns per unit of risk. Companhia Paranaense de is currently generating about -0.25 per unit of risk. If you would invest  8,601  in American States Water on August 16, 2024 and sell it today you would lose (67.00) from holding American States Water or give up 0.78% of portfolio value over 90 days.

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

American States Water  vs.  Companhia Paranaense de

American States Water

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American States Water are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, American States is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Companhia Paranaense

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Companhia Paranaense de has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in December 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with American States and Companhia Paranaense

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

The idea behind American States Water and Companhia Paranaense de 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 Global Correlations module to find global opportunities by holding instruments from different markets.