Correlation Between Business Development and Watsco

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

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

Diversification Opportunities for Business Development and Watsco

0.25

Correlation Coefficient

Business Development  Watsco

Modest diversification

The 3 months correlation between Business and Watsco is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Business Development Corp and Watsco Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Watsco Inc and Business Development 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 Business Development Corp 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 Business Development i.e., Business Development and Watsco go up and down completely randomly.

Pair Corralation between Business Development and Watsco

If you would invest  1,001  in Business Development Corp on September 22, 2024 and sell it today you would earn a total of  0.00  from holding Business Development Corp or generate 0.0% return on investment over 90 days.

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

Business Development Corp  vs.  Watsco Inc

Business Development Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Business Development Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Business Development is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Watsco Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Watsco Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Watsco is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Business Development and Watsco

The main advantage of trading using opposite Business Development and Watsco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Business Development 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 Business Development Corp 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.