Correlation Between Watsco and Pacific Basin
Can any of the company-specific risk be diversified away by investing in both Watsco and Pacific Basin 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 Pacific Basin into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Watsco Inc and Pacific Basin Shipping, you can compare the effects of market volatilities on Watsco and Pacific Basin 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 Pacific Basin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Watsco and Pacific Basin.
Diversification Opportunities for Watsco and Pacific Basin
-0.03 | Correlation Coefficient |
Good diversification
The 3 months correlation between Watsco and Pacific is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Watsco Inc and Pacific Basin Shipping in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacific Basin Shipping 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 Pacific Basin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacific Basin Shipping has no effect on the direction of Watsco i.e., Watsco and Pacific Basin go up and down completely randomly.
Pair Corralation between Watsco and Pacific Basin
Considering the 90-day investment horizon Watsco Inc is expected to generate 0.31 times more return on investment than Pacific Basin. However, Watsco Inc is 3.21 times less risky than Pacific Basin. It trades about 0.09 of its potential returns per unit of risk. Pacific Basin Shipping is currently generating about 0.0 per unit of risk. If you would invest 24,213 in Watsco Inc on September 23, 2024 and sell it today you would earn a total of 24,220 from holding Watsco Inc or generate 100.03% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Insignificant |
Accuracy | 65.59% |
Values | Daily Returns |
Watsco Inc vs. Pacific Basin Shipping
Performance |
Timeline |
Watsco Inc |
Pacific Basin Shipping |
Watsco and Pacific Basin Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Watsco and Pacific Basin
The main advantage of trading using opposite Watsco and Pacific Basin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Watsco position performs unexpectedly, Pacific Basin 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 Pacific Basin will offset losses from the drop in Pacific Basin's long position.Watsco vs. Fastenal Company | Watsco vs. SiteOne Landscape Supply | Watsco vs. Ferguson Plc | Watsco vs. WW Grainger |
Pacific Basin vs. Watsco Inc | Pacific Basin vs. Fastenal Company | Pacific Basin vs. SiteOne Landscape Supply | Pacific Basin vs. Ferguson Plc |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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