Correlation Between Global Industrial and Watsco

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

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

Diversification Opportunities for Global Industrial and Watsco

-0.3

Correlation Coefficient

Global Industrial  Watsco

Very good diversification

The 3 months correlation between Global and Watsco is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Global Industrial Co and Watsco Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Watsco Inc and Global Industrial 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 Global Industrial Co 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 Global Industrial i.e., Global Industrial and Watsco go up and down completely randomly.

Pair Corralation between Global Industrial and Watsco

Considering the 90-day investment horizon Global Industrial Co is expected to under-perform the Watsco. But the stock apears to be less risky and, when comparing its historical volatility, Global Industrial Co is 1.18 times less risky than Watsco. The stock trades about -0.07 of its potential returns per unit of risk. The Watsco Inc is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  47,218  in Watsco Inc on December 28, 2024 and sell it today you would earn a total of  4,182  from holding Watsco Inc or generate 8.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Global Industrial Co  vs.  Watsco Inc

Global Industrial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Global Industrial Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's forward indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Watsco Inc

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Watsco Inc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Watsco may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Global Industrial and Watsco

The main advantage of trading using opposite Global Industrial and Watsco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global Industrial 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 Global Industrial Co 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.

Check out your portfolio center.

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.