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

0.4

Correlation Coefficient

Core Main  Watsco

Very weak diversification

The 3 months correlation between Core and Watsco is 0.4. 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 3.18 times less return on investment than Watsco. In addition to that, Core Main is 1.72 times more volatile than Watsco Inc. It trades about 0.03 of its total potential returns per unit of risk. Watsco Inc is currently generating about 0.19 per unit of volatility. If you would invest  45,374  in Watsco Inc on September 2, 2024 and sell it today you would earn a total of  9,786  from holding Watsco Inc or generate 21.57% return on investment over 90 days.

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

Core Main  vs.  Watsco Inc

Core Main

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Core Main are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Core Main may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Watsco Inc

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Watsco Inc are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Watsco displayed solid returns over the last few months and may actually be approaching a breakup point.

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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.