Correlation Between Core Main and Watsco

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

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

Diversification Opportunities for Core Main and Watsco

-0.55

Correlation Coefficient

Core Main  Watsco

Excellent diversification

The 3 months correlation between Core and Watsco is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Core Main and Watsco Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Watsco Inc and Core Main 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 Core Main 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 Core Main i.e., Core Main and Watsco go up and down completely randomly.

Pair Corralation between Core Main and Watsco

Considering the 90-day investment horizon Core Main is expected to generate 0.73 times more return on investment than Watsco. However, Core Main is 1.36 times less risky than Watsco. It trades about -0.02 of its potential returns per unit of risk. Watsco Inc is currently generating about -0.02 per unit of risk. If you would invest  5,077  in Core Main on December 28, 2024 and sell it today you would lose (127.00) from holding Core Main or give up 2.5% of portfolio value over 90 days.

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

Core Main  vs.  Watsco Inc

Core Main

Risk-Adjusted Performance

Very Weak

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

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 Core Main and Watsco

The main advantage of trading using opposite Core Main and Watsco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Core Main 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 Core Main 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.