Correlation Between Watsco and New Era

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

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

Diversification Opportunities for Watsco and New Era

0.35

Correlation Coefficient

Watsco  New Era

Weak diversification

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

Pair Corralation between Watsco and New Era

Considering the 90-day investment horizon Watsco Inc is expected to generate 0.15 times more return on investment than New Era. However, Watsco Inc is 6.86 times less risky than New Era. It trades about -0.05 of its potential returns per unit of risk. New Era Helium is currently generating about -0.08 per unit of risk. If you would invest  49,437  in Watsco Inc on October 13, 2024 and sell it today you would lose (3,051) from holding Watsco Inc or give up 6.17% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Watsco Inc  vs.  New Era Helium

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.

New Era Helium

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days New Era Helium has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Watsco and New Era

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

The idea behind Watsco Inc and New Era Helium 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.