Correlation Between WESCO International and Watsco

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

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

Diversification Opportunities for WESCO International and Watsco

0.63

Correlation Coefficient

WESCO International  Watsco

Poor diversification

The 3 months correlation between WESCO and Watsco is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding WESCO International and Watsco Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Watsco Inc and WESCO International 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 WESCO International 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 WESCO International i.e., WESCO International and Watsco go up and down completely randomly.

Pair Corralation between WESCO International and Watsco

Assuming the 90 days trading horizon WESCO International is expected to generate 5.24 times less return on investment than Watsco. But when comparing it to its historical volatility, WESCO International is 13.4 times less risky than Watsco. It trades about 0.25 of its potential returns per unit of risk. Watsco Inc is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  48,245  in Watsco Inc on August 31, 2024 and sell it today you would earn a total of  5,255  from holding Watsco Inc or generate 10.89% return on investment over 90 days.

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

WESCO International  vs.  Watsco Inc

WESCO International

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in WESCO International are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, WESCO International is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the 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 unsteady basic indicators, Watsco may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with WESCO International and Watsco

The main advantage of trading using opposite WESCO International and Watsco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WESCO International 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 WESCO International 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.