Correlation Between GM and WATSCO INC

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

By analyzing existing cross correlation between General Motors and WATSCO INC B, you can compare the effects of market volatilities on GM and WATSCO INC 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 GM with a short position of WATSCO INC. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and WATSCO INC.

Diversification Opportunities for GM and WATSCO INC

-0.45

Correlation Coefficient

GM  WATSCO INC

Very good diversification

The 3 months correlation between GM and WATSCO is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and WATSCO INC B in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WATSCO INC B and GM 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 General Motors are associated (or correlated) with WATSCO INC. 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 B has no effect on the direction of GM i.e., GM and WATSCO INC go up and down completely randomly.

Pair Corralation between GM and WATSCO INC

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the WATSCO INC. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.02 times less risky than WATSCO INC. The stock trades about -0.03 of its potential returns per unit of risk. The WATSCO INC B is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  41,142  in WATSCO INC B on December 27, 2024 and sell it today you would earn a total of  4,458  from holding WATSCO INC B or generate 10.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.77%
Values	Daily Returns

General Motors  vs.  WATSCO INC B

General Motors

Risk-Adjusted Performance

Very Weak

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

WATSCO INC B

Risk-Adjusted Performance

Modest

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

Pair Trading with GM and WATSCO INC

The main advantage of trading using opposite GM and WATSCO INC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, WATSCO INC 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 INC will offset losses from the drop in WATSCO INC's long position.

The idea behind General Motors and WATSCO INC B 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.