Correlation Between Global Partners and Watsco

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

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

Diversification Opportunities for Global Partners and Watsco

0.6

Correlation Coefficient

Global Partners  Watsco

Poor diversification

The 3 months correlation between Global and Watsco is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Global Partners LP and Watsco Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Watsco Inc and Global Partners 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 Partners LP 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 Partners i.e., Global Partners and Watsco go up and down completely randomly.

Pair Corralation between Global Partners and Watsco

Assuming the 90 days trading horizon Global Partners LP is expected to generate 0.15 times more return on investment than Watsco. However, Global Partners LP is 6.68 times less risky than Watsco. It trades about 0.13 of its potential returns per unit of risk. Watsco Inc is currently generating about 0.02 per unit of risk. If you would invest  2,499  in Global Partners LP on September 22, 2024 and sell it today you would earn a total of  110.00  from holding Global Partners LP or generate 4.4% return on investment over 90 days.

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

Global Partners LP  vs.  Watsco Inc

Global Partners LP

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Global Partners LP are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Global Partners is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Watsco Inc

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Global Partners and Watsco

The main advantage of trading using opposite Global Partners and Watsco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global Partners 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 Partners LP 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.