Correlation Between SiteOne Landscape and Pool

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

By analyzing existing cross correlation between SiteOne Landscape Supply and Pool Corporation, you can compare the effects of market volatilities on SiteOne Landscape and Pool 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 SiteOne Landscape with a short position of Pool. Check out your portfolio center. Please also check ongoing floating volatility patterns of SiteOne Landscape and Pool.

Diversification Opportunities for SiteOne Landscape and Pool

0.87

Correlation Coefficient

SiteOne Landscape  Pool

Very poor diversification

The 3 months correlation between SiteOne and Pool is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding SiteOne Landscape Supply and Pool Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pool and SiteOne Landscape 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 SiteOne Landscape Supply are associated (or correlated) with Pool. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pool has no effect on the direction of SiteOne Landscape i.e., SiteOne Landscape and Pool go up and down completely randomly.

Pair Corralation between SiteOne Landscape and Pool

Given the investment horizon of 90 days SiteOne Landscape Supply is expected to generate 1.16 times more return on investment than Pool. However, SiteOne Landscape is 1.16 times more volatile than Pool Corporation. It trades about 0.1 of its potential returns per unit of risk. Pool Corporation is currently generating about 0.1 per unit of risk. If you would invest  13,432  in SiteOne Landscape Supply on September 2, 2024 and sell it today you would earn a total of  1,893  from holding SiteOne Landscape Supply or generate 14.09% return on investment over 90 days.

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

SiteOne Landscape Supply  vs.  Pool Corp.

SiteOne Landscape Supply

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SiteOne Landscape Supply are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, SiteOne Landscape exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pool

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with SiteOne Landscape and Pool

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

The idea behind SiteOne Landscape Supply and Pool Corporation 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.

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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.