Correlation Between WW Grainger and Watsco

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

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

Diversification Opportunities for WW Grainger and Watsco

0.64

Correlation Coefficient

WW Grainger  Watsco

Poor diversification

The 3 months correlation between GWW and Watsco is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding WW Grainger and Watsco Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Watsco Inc and WW Grainger 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 WW Grainger 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 WW Grainger i.e., WW Grainger and Watsco go up and down completely randomly.

Pair Corralation between WW Grainger and Watsco

Considering the 90-day investment horizon WW Grainger is expected to under-perform the Watsco. In addition to that, WW Grainger is 1.47 times more volatile than Watsco Inc. It trades about -0.37 of its total potential returns per unit of risk. Watsco Inc is currently generating about 0.22 per unit of volatility. If you would invest  51,970  in Watsco Inc on September 21, 2024 and sell it today you would earn a total of  1,530  from holding Watsco Inc or generate 2.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

WW Grainger  vs.  Watsco Inc

WW Grainger

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in WW Grainger are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, WW Grainger is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Watsco Inc

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Watsco Inc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Watsco may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with WW Grainger and Watsco

The main advantage of trading using opposite WW Grainger and Watsco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WW Grainger 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 WW Grainger 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.