Correlation Between CARSALES and Watsco

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

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

Diversification Opportunities for CARSALES and Watsco

0.84

Correlation Coefficient

CARSALES  Watsco

Very poor diversification

The 3 months correlation between CARSALES and Watsco is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding CARSALESCOM and Watsco Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Watsco Inc and CARSALES 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 CARSALESCOM 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 CARSALES i.e., CARSALES and Watsco go up and down completely randomly.

Pair Corralation between CARSALES and Watsco

Assuming the 90 days trading horizon CARSALESCOM is expected to generate 1.45 times more return on investment than Watsco. However, CARSALES is 1.45 times more volatile than Watsco Inc. It trades about 0.09 of its potential returns per unit of risk. Watsco Inc is currently generating about 0.13 per unit of risk. If you would invest  2,240  in CARSALESCOM on October 23, 2024 and sell it today you would earn a total of  60.00  from holding CARSALESCOM or generate 2.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	94.12%
Values	Daily Returns

CARSALESCOM  vs.  Watsco Inc

CARSALESCOM

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CARSALESCOM are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, CARSALES is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Watsco Inc

Risk-Adjusted Performance

8 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Watsco Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Watsco may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with CARSALES and Watsco

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

Check out your portfolio center.

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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.