Correlation Between Watsco and Aluminumof China

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

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

Diversification Opportunities for Watsco and Aluminumof China

-0.15

Correlation Coefficient

Watsco  Aluminumof China

Good diversification

The 3 months correlation between Watsco and Aluminumof is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Watsco Inc and Aluminum of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aluminumof China and Watsco 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 Watsco Inc are associated (or correlated) with Aluminumof China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aluminumof China has no effect on the direction of Watsco i.e., Watsco and Aluminumof China go up and down completely randomly.

Pair Corralation between Watsco and Aluminumof China

Assuming the 90 days horizon Watsco is expected to generate 1.28 times less return on investment than Aluminumof China. But when comparing it to its historical volatility, Watsco Inc is 1.96 times less risky than Aluminumof China. It trades about 0.09 of its potential returns per unit of risk. Aluminum of is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  26.00  in Aluminum of on September 24, 2024 and sell it today you would earn a total of  27.00  from holding Aluminum of or generate 103.85% return on investment over 90 days.

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

Watsco Inc  vs.  Aluminum of

Watsco Inc

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Watsco Inc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Watsco is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Aluminumof China

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Aluminum of are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Aluminumof China may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Watsco and Aluminumof China

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

The idea behind Watsco Inc and Aluminum of 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 CEOs Directory module to screen CEOs from public companies around the world.