Correlation Between H-FARM SPA and Watsco

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

By analyzing existing cross correlation between H FARM SPA and Watsco Inc, you can compare the effects of market volatilities on H-FARM SPA and Watsco 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 H-FARM SPA with a short position of Watsco. Check out your portfolio center. Please also check ongoing floating volatility patterns of H-FARM SPA and Watsco.

Diversification Opportunities for H-FARM SPA and Watsco

-0.56

Correlation Coefficient

H-FARM SPA  Watsco

Excellent diversification

The 3 months correlation between H-FARM and Watsco is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding H FARM SPA and Watsco Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Watsco Inc and H-FARM SPA 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 H FARM SPA are associated (or correlated) with Watsco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Watsco Inc has no effect on the direction of H-FARM SPA i.e., H-FARM SPA and Watsco go up and down completely randomly.

Pair Corralation between H-FARM SPA and Watsco

Assuming the 90 days horizon H FARM SPA is expected to generate 8.67 times more return on investment than Watsco. However, H-FARM SPA is 8.67 times more volatile than Watsco Inc. It trades about 0.1 of its potential returns per unit of risk. Watsco Inc is currently generating about 0.13 per unit of risk. If you would invest  12.00  in H FARM SPA on October 23, 2024 and sell it today you would earn a total of  1.00  from holding H FARM SPA or generate 8.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	94.12%
Values	Daily Returns

H FARM SPA  vs.  Watsco Inc

H FARM SPA

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in H FARM SPA are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, H-FARM SPA reported solid returns over the last few months and may actually be approaching a breakup point.

Watsco Inc

Risk-Adjusted Performance

8 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Watsco Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Watsco may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with H-FARM SPA and Watsco

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

The idea behind H FARM SPA and Watsco Inc 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.