Correlation Between Companhia and Middlesex Water

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

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

Diversification Opportunities for Companhia and Middlesex Water

0.09

Correlation Coefficient

Companhia  Middlesex Water

Significant diversification

The 3 months correlation between Companhia and Middlesex is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Companhia de Saneamento and Middlesex Water in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Middlesex Water and Companhia 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 Companhia de Saneamento are associated (or correlated) with Middlesex Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Middlesex Water has no effect on the direction of Companhia i.e., Companhia and Middlesex Water go up and down completely randomly.

Pair Corralation between Companhia and Middlesex Water

Considering the 90-day investment horizon Companhia de Saneamento is expected to generate 0.97 times more return on investment than Middlesex Water. However, Companhia de Saneamento is 1.03 times less risky than Middlesex Water. It trades about -0.03 of its potential returns per unit of risk. Middlesex Water is currently generating about -0.14 per unit of risk. If you would invest  1,992  in Companhia de Saneamento on May 2, 2025 and sell it today you would lose (64.00) from holding Companhia de Saneamento or give up 3.21% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Companhia de Saneamento  vs.  Middlesex Water

Companhia de Saneamento

Risk-Adjusted Performance

Very Weak

Over the last 90 days Companhia de Saneamento has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental drivers, Companhia is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Middlesex Water

Risk-Adjusted Performance

Very Weak

Over the last 90 days Middlesex Water 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 technical and fundamental indicators remain fairly strong which may send shares a bit higher in August 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Companhia and Middlesex Water

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

The idea behind Companhia de Saneamento and Middlesex Water 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.