Correlation Between Watsco and WATSCO INC

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

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

Diversification Opportunities for Watsco and WATSCO INC

-0.59

Correlation Coefficient

Watsco  WATSCO INC

Excellent diversification

The 3 months correlation between Watsco and WATSCO is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Watsco Inc 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 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 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 Watsco i.e., Watsco and WATSCO INC go up and down completely randomly.

Pair Corralation between Watsco and WATSCO INC

Assuming the 90 days horizon Watsco is expected to generate 1.09 times less return on investment than WATSCO INC. But when comparing it to its historical volatility, Watsco Inc is 1.29 times less risky than WATSCO INC. It trades about 0.08 of its potential returns per unit of risk. WATSCO INC B is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  23,623  in WATSCO INC B on September 26, 2024 and sell it today you would earn a total of  17,777  from holding WATSCO INC B or generate 75.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.79%
Values	Daily Returns

Watsco Inc  vs.  WATSCO INC B

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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.

WATSCO INC B

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WATSCO INC B has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, WATSCO INC is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Watsco and WATSCO INC

The main advantage of trading using opposite Watsco and WATSCO INC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Watsco 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 Watsco Inc 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.

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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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.