Correlation Between Watsco and WESCO International

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

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

Diversification Opportunities for Watsco and WESCO International

0.03

Correlation Coefficient

Watsco  WESCO International

Significant diversification

The 3 months correlation between Watsco and WESCO is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Watsco Inc and WESCO International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WESCO International 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 WESCO International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WESCO International has no effect on the direction of Watsco i.e., Watsco and WESCO International go up and down completely randomly.

Pair Corralation between Watsco and WESCO International

Assuming the 90 days horizon Watsco Inc is expected to under-perform the WESCO International. In addition to that, Watsco is 15.62 times more volatile than WESCO International. It trades about -0.02 of its total potential returns per unit of risk. WESCO International is currently generating about 0.17 per unit of volatility. If you would invest  2,490  in WESCO International on December 29, 2024 and sell it today you would earn a total of  37.00  from holding WESCO International or generate 1.49% 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.  WESCO International

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.

WESCO International

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in WESCO International are ranked lower than 13 (%) 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.

Pair Trading with Watsco and WESCO International

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

The idea behind Watsco Inc and WESCO International 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.