Correlation Between Watsco and EVI Industries

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

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

Diversification Opportunities for Watsco and EVI Industries

0.05

Correlation Coefficient

Watsco  EVI Industries

Significant diversification

The 3 months correlation between Watsco and EVI is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Watsco Inc and EVI Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EVI Industries 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 EVI Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EVI Industries has no effect on the direction of Watsco i.e., Watsco and EVI Industries go up and down completely randomly.

Pair Corralation between Watsco and EVI Industries

Assuming the 90 days horizon Watsco Inc is expected to under-perform the EVI Industries. But the stock apears to be less risky and, when comparing its historical volatility, Watsco Inc is 1.43 times less risky than EVI Industries. The stock trades about -0.02 of its potential returns per unit of risk. The EVI Industries is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,701  in EVI Industries on December 28, 2024 and sell it today you would earn a total of  160.00  from holding EVI Industries or generate 9.41% return on investment over 90 days.

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

Watsco Inc  vs.  EVI Industries

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.

EVI Industries

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in EVI Industries are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, EVI Industries may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Watsco and EVI Industries

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

The idea behind Watsco Inc and EVI Industries 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.