Correlation Between Watsco and BANDAI NAMCO

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

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

Diversification Opportunities for Watsco and BANDAI NAMCO

-0.35

Correlation Coefficient

Watsco  BANDAI NAMCO

Very good diversification

The 3 months correlation between Watsco and BANDAI is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Watsco Inc and BANDAI NAMCO Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BANDAI NAMCO Holdings 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 BANDAI NAMCO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BANDAI NAMCO Holdings has no effect on the direction of Watsco i.e., Watsco and BANDAI NAMCO go up and down completely randomly.

Pair Corralation between Watsco and BANDAI NAMCO

Considering the 90-day investment horizon Watsco Inc is expected to generate 0.94 times more return on investment than BANDAI NAMCO. However, Watsco Inc is 1.06 times less risky than BANDAI NAMCO. It trades about 0.01 of its potential returns per unit of risk. BANDAI NAMCO Holdings is currently generating about -0.03 per unit of risk. If you would invest  48,919  in Watsco Inc on September 28, 2024 and sell it today you would lose (161.00) from holding Watsco Inc or give up 0.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.16%
Values	Daily Returns

Watsco Inc  vs.  BANDAI NAMCO Holdings

Watsco Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Watsco Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Watsco is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

BANDAI NAMCO Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BANDAI NAMCO Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, BANDAI NAMCO is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Watsco and BANDAI NAMCO

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

The idea behind Watsco Inc and BANDAI NAMCO Holdings 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.