Correlation Between Oxford Lane and Watsco

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

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

Diversification Opportunities for Oxford Lane and Watsco

-0.48

Correlation Coefficient

Oxford Lane  Watsco

Very good diversification

The 3 months correlation between Oxford and Watsco is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Oxford Lane Capital and Watsco Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Watsco Inc and Oxford Lane 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 Oxford Lane Capital 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 Oxford Lane i.e., Oxford Lane and Watsco go up and down completely randomly.

Pair Corralation between Oxford Lane and Watsco

Assuming the 90 days horizon Oxford Lane Capital is expected to under-perform the Watsco. But the stock apears to be less risky and, when comparing its historical volatility, Oxford Lane Capital is 3.94 times less risky than Watsco. The stock trades about -0.09 of its potential returns per unit of risk. The Watsco Inc is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  49,299  in Watsco Inc on October 1, 2024 and sell it today you would lose (1,304) from holding Watsco Inc or give up 2.65% of portfolio value over 90 days.

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

Oxford Lane Capital  vs.  Watsco Inc

Oxford Lane Capital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Oxford Lane Capital has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

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 Oxford Lane and Watsco

The main advantage of trading using opposite Oxford Lane and Watsco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Oxford Lane 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 Oxford Lane Capital 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..