Correlation Between Watsco and Global Industrial

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

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

Diversification Opportunities for Watsco and Global Industrial

-0.36

Correlation Coefficient

Watsco  Global Industrial

Very good diversification

The 3 months correlation between Watsco and Global is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Watsco Inc and Global Industrial Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Industrial 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 Global Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Industrial has no effect on the direction of Watsco i.e., Watsco and Global Industrial go up and down completely randomly.

Pair Corralation between Watsco and Global Industrial

Assuming the 90 days horizon Watsco Inc is expected to generate 0.58 times more return on investment than Global Industrial. However, Watsco Inc is 1.72 times less risky than Global Industrial. It trades about 0.1 of its potential returns per unit of risk. Global Industrial Co is currently generating about -0.04 per unit of risk. 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 Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Watsco Inc  vs.  Global Industrial Co

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.

Global Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Global Industrial Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's forward indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Watsco and Global Industrial

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

The idea behind Watsco Inc and Global Industrial Co 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.