Correlation Between BlueLinx Holdings and Watsco

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

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

Diversification Opportunities for BlueLinx Holdings and Watsco

0.27

Correlation Coefficient

BlueLinx Holdings  Watsco

Modest diversification

The 3 months correlation between BlueLinx and Watsco is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding BlueLinx Holdings and Watsco Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Watsco Inc and BlueLinx Holdings 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 BlueLinx Holdings 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 BlueLinx Holdings i.e., BlueLinx Holdings and Watsco go up and down completely randomly.

Pair Corralation between BlueLinx Holdings and Watsco

Considering the 90-day investment horizon BlueLinx Holdings is expected to under-perform the Watsco. In addition to that, BlueLinx Holdings is 1.23 times more volatile than Watsco Inc. It trades about -0.36 of its total potential returns per unit of risk. Watsco Inc is currently generating about 0.13 per unit of volatility. If you would invest  46,995  in Watsco Inc on November 29, 2024 and sell it today you would earn a total of  3,140  from holding Watsco Inc or generate 6.68% return on investment over 90 days.

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

BlueLinx Holdings  vs.  Watsco Inc

BlueLinx Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days BlueLinx Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Watsco Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Watsco Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Watsco is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with BlueLinx Holdings and Watsco

The main advantage of trading using opposite BlueLinx Holdings and Watsco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BlueLinx Holdings 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 BlueLinx Holdings 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.