Correlation Between Bakkt Holdings and Watsco

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

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

Diversification Opportunities for Bakkt Holdings and Watsco

0.36

Correlation Coefficient

Bakkt Holdings  Watsco

Weak diversification

The 3 months correlation between Bakkt and Watsco is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Bakkt Holdings Warrant and Watsco Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Watsco Inc and Bakkt Holdings 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 Bakkt Holdings Warrant are associated (or correlated) with Watsco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Watsco Inc has no effect on the direction of Bakkt Holdings i.e., Bakkt Holdings and Watsco go up and down completely randomly.

Pair Corralation between Bakkt Holdings and Watsco

Assuming the 90 days trading horizon Bakkt Holdings Warrant is expected to generate 17.09 times more return on investment than Watsco. However, Bakkt Holdings is 17.09 times more volatile than Watsco Inc. It trades about 0.11 of its potential returns per unit of risk. Watsco Inc is currently generating about 0.01 per unit of risk. If you would invest  13.00  in Bakkt Holdings Warrant on October 1, 2024 and sell it today you would earn a total of  56.00  from holding Bakkt Holdings Warrant or generate 430.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	91.27%
Values	Daily Returns

Bakkt Holdings Warrant  vs.  Watsco Inc

Bakkt Holdings Warrant

Risk-Adjusted Performance

12 of 100

Good

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

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.

Pair Trading with Bakkt Holdings and Watsco

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

The idea behind Bakkt Holdings Warrant and Watsco Inc 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.