Correlation Between Micron Technology and Watsco

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

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

Diversification Opportunities for Micron Technology and Watsco

-0.11

Correlation Coefficient

Micron Technology  Watsco

Good diversification

The 3 months correlation between Micron and Watsco is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Micron Technology and Watsco Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Watsco Inc and Micron Technology 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 Micron Technology 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 Micron Technology i.e., Micron Technology and Watsco go up and down completely randomly.

Pair Corralation between Micron Technology and Watsco

Allowing for the 90-day total investment horizon Micron Technology is expected to under-perform the Watsco. In addition to that, Micron Technology is 2.07 times more volatile than Watsco Inc. It trades about -0.09 of its total potential returns per unit of risk. Watsco Inc is currently generating about 0.08 per unit of volatility. If you would invest  44,220  in Watsco Inc on September 26, 2024 and sell it today you would earn a total of  2,460  from holding Watsco Inc or generate 5.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.62%
Values	Daily Returns

Micron Technology  vs.  Watsco Inc

Micron Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Micron Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Watsco Inc

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Watsco Inc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Watsco is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Micron Technology and Watsco

The main advantage of trading using opposite Micron Technology and Watsco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Micron Technology 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 Micron Technology 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.