Correlation Between Watts Water and Proshares

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

By analyzing existing cross correlation between Watts Water Technologies and Proshares SP Global, you can compare the effects of market volatilities on Watts Water and Proshares 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 Watts Water with a short position of Proshares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Watts Water and Proshares.

Diversification Opportunities for Watts Water and Proshares

0.21

Correlation Coefficient

Watts Water  Proshares

Modest diversification

The 3 months correlation between Watts and Proshares is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Watts Water Technologies and Proshares SP Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Proshares SP Global and Watts Water 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 Watts Water Technologies are associated (or correlated) with Proshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Proshares SP Global has no effect on the direction of Watts Water i.e., Watts Water and Proshares go up and down completely randomly.

Pair Corralation between Watts Water and Proshares

Considering the 90-day investment horizon Watts Water Technologies is expected to generate 0.65 times more return on investment than Proshares. However, Watts Water Technologies is 1.54 times less risky than Proshares. It trades about 0.16 of its potential returns per unit of risk. Proshares SP Global is currently generating about 0.09 per unit of risk. If you would invest  19,206  in Watts Water Technologies on September 12, 2024 and sell it today you would earn a total of  2,940  from holding Watts Water Technologies or generate 15.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Watts Water Technologies  vs.  Proshares SP Global

Watts Water Technologies

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Watts Water Technologies are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Watts Water unveiled solid returns over the last few months and may actually be approaching a breakup point.

Proshares SP Global

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Proshares SP Global are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Proshares may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Watts Water and Proshares

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

The idea behind Watts Water Technologies and Proshares SP Global 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.