Correlation Between Now and Watsco

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

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

Diversification Opportunities for Now and Watsco

0.0

Correlation Coefficient

Now  Watsco

Pay attention - limited upside

The 3 months correlation between Now and Watsco is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Now Inc and Watsco Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Watsco Inc and Now 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 Now Inc 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 Now i.e., Now and Watsco go up and down completely randomly.

Pair Corralation between Now and Watsco

Given the investment horizon of 90 days Now Inc is expected to generate 1.58 times more return on investment than Watsco. However, Now is 1.58 times more volatile than Watsco Inc. It trades about 0.16 of its potential returns per unit of risk. Watsco Inc is currently generating about -0.02 per unit of risk. If you would invest  1,291  in Now Inc on December 28, 2024 and sell it today you would earn a total of  439.00  from holding Now Inc or generate 34.0% return on investment over 90 days.

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

Now Inc  vs.  Watsco Inc

Now Inc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Now Inc are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Now showed solid returns over the last few months and may actually be approaching a breakup point.

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 Now and Watsco

The main advantage of trading using opposite Now and Watsco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Now 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 Now Inc 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.