Correlation Between Watsco and Distribution Solutions

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

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

Diversification Opportunities for Watsco and Distribution Solutions

0.61

Correlation Coefficient

Watsco  Distribution Solutions

Poor diversification

The 3 months correlation between Watsco and Distribution is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Watsco Inc and Distribution Solutions Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Distribution Solutions 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 Distribution Solutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Distribution Solutions has no effect on the direction of Watsco i.e., Watsco and Distribution Solutions go up and down completely randomly.

Pair Corralation between Watsco and Distribution Solutions

Assuming the 90 days horizon Watsco Inc is expected to generate 1.51 times more return on investment than Distribution Solutions. However, Watsco is 1.51 times more volatile than Distribution Solutions Group. It trades about 0.13 of its potential returns per unit of risk. Distribution Solutions Group is currently generating about -0.26 per unit of risk. If you would invest  46,995  in Watsco Inc on November 29, 2024 and sell it today you would earn a total of  3,140  from holding Watsco Inc or generate 6.68% return on investment over 90 days.

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

Watsco Inc  vs.  Distribution Solutions Group

Watsco Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Watsco Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Watsco is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Distribution Solutions

Risk-Adjusted Performance

Very Weak

Over the last 90 days Distribution Solutions Group has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unsteady performance in the last few months, the Stock's technical and fundamental indicators remain relatively invariable which may send shares a bit higher in March 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Watsco and Distribution Solutions

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

The idea behind Watsco Inc and Distribution Solutions Group 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.