Correlation Between Aluminumof China and Watsco

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

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

Diversification Opportunities for Aluminumof China and Watsco

-0.22

Correlation Coefficient

Aluminumof China  Watsco

Very good diversification

The 3 months correlation between Aluminumof and Watsco is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Aluminum of and Watsco Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Watsco Inc and Aluminumof China 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 Aluminum of 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 Aluminumof China i.e., Aluminumof China and Watsco go up and down completely randomly.

Pair Corralation between Aluminumof China and Watsco

Assuming the 90 days horizon Aluminum of is expected to under-perform the Watsco. In addition to that, Aluminumof China is 2.28 times more volatile than Watsco Inc. It trades about 0.0 of its total potential returns per unit of risk. Watsco Inc is currently generating about 0.02 per unit of volatility. If you would invest  44,850  in Watsco Inc on October 15, 2024 and sell it today you would earn a total of  360.00  from holding Watsco Inc or generate 0.8% return on investment over 90 days.

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

Aluminum of  vs.  Watsco Inc

Aluminumof China

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aluminum of has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Aluminumof China is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Watsco Inc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Watsco Inc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Watsco is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Aluminumof China and Watsco

The main advantage of trading using opposite Aluminumof China and Watsco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aluminumof China 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 Aluminum of 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.

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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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.