Correlation Between Watsco and BJs Restaurants

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

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

Diversification Opportunities for Watsco and BJs Restaurants

0.59

Correlation Coefficient

Watsco  BJs Restaurants

Very weak diversification

The 3 months correlation between Watsco and BJs is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Watsco Inc and BJs Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BJs Restaurants 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 BJs Restaurants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BJs Restaurants has no effect on the direction of Watsco i.e., Watsco and BJs Restaurants go up and down completely randomly.

Pair Corralation between Watsco and BJs Restaurants

Assuming the 90 days horizon Watsco Inc is expected to generate 0.64 times more return on investment than BJs Restaurants. However, Watsco Inc is 1.55 times less risky than BJs Restaurants. It trades about 0.08 of its potential returns per unit of risk. BJs Restaurants is currently generating about 0.02 per unit of risk. If you would invest  23,866  in Watsco Inc on October 13, 2024 and sell it today you would earn a total of  21,144  from holding Watsco Inc or generate 88.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

Watsco Inc  vs.  BJs Restaurants

Watsco Inc

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Watsco Inc are ranked lower than 2 (%) 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.

BJs Restaurants

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BJs Restaurants are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, BJs Restaurants may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Watsco and BJs Restaurants

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

The idea behind Watsco Inc and BJs Restaurants 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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.