Correlation Between Watsco and Oxford Lane

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

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

Diversification Opportunities for Watsco and Oxford Lane

-0.01

Correlation Coefficient

Watsco  Oxford Lane

Good diversification

The 3 months correlation between Watsco and Oxford is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Watsco Inc and Oxford Lane Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oxford Lane Capital 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 Oxford Lane. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oxford Lane Capital has no effect on the direction of Watsco i.e., Watsco and Oxford Lane go up and down completely randomly.

Pair Corralation between Watsco and Oxford Lane

Considering the 90-day investment horizon Watsco Inc is expected to generate 4.41 times more return on investment than Oxford Lane. However, Watsco is 4.41 times more volatile than Oxford Lane Capital. It trades about 0.07 of its potential returns per unit of risk. Oxford Lane Capital is currently generating about 0.02 per unit of risk. If you would invest  45,654  in Watsco Inc on December 10, 2024 and sell it today you would earn a total of  6,397  from holding Watsco Inc or generate 14.01% 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.  Oxford Lane Capital

Watsco Inc

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Watsco Inc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Oxford Lane Capital

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Oxford Lane Capital are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental indicators, Oxford Lane is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Watsco and Oxford Lane

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

The idea behind Watsco Inc and Oxford Lane Capital 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.