Correlation Between Investec and Watsco

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

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

Diversification Opportunities for Investec and Watsco

0.07

Correlation Coefficient

Investec  Watsco

Significant diversification

The 3 months correlation between Investec and Watsco is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Investec Ltd ADR and Watsco Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Watsco Inc and Investec 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 Investec Ltd ADR 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 Investec i.e., Investec and Watsco go up and down completely randomly.

Pair Corralation between Investec and Watsco

Assuming the 90 days horizon Investec Ltd ADR is expected to generate 7.47 times more return on investment than Watsco. However, Investec is 7.47 times more volatile than Watsco Inc. It trades about 0.01 of its potential returns per unit of risk. Watsco Inc is currently generating about -0.46 per unit of risk. If you would invest  1,459  in Investec Ltd ADR on September 23, 2024 and sell it today you would lose (117.00) from holding Investec Ltd ADR or give up 8.02% of portfolio value over 90 days.

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

Investec Ltd ADR  vs.  Watsco Inc

Investec ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Investec Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Investec 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 Investec and Watsco

The main advantage of trading using opposite Investec and Watsco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Investec 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 Investec Ltd ADR 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.