Correlation Between Treatt Plc and Watsco

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

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

Diversification Opportunities for Treatt Plc and Watsco

-0.29

Correlation Coefficient

Treatt Plc  Watsco

Very good diversification

The 3 months correlation between Treatt and Watsco is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Treatt plc and Watsco Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Watsco Inc and Treatt Plc 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 Treatt plc 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 Treatt Plc i.e., Treatt Plc and Watsco go up and down completely randomly.

Pair Corralation between Treatt Plc and Watsco

Assuming the 90 days horizon Treatt plc is expected to generate 5.03 times more return on investment than Watsco. However, Treatt Plc is 5.03 times more volatile than Watsco Inc. It trades about 0.05 of its potential returns per unit of risk. Watsco Inc is currently generating about -0.58 per unit of risk. If you would invest  600.00  in Treatt plc on September 26, 2024 and sell it today you would earn a total of  15.00  from holding Treatt plc or generate 2.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Treatt plc  vs.  Watsco Inc

Treatt plc

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Treatt plc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Treatt Plc may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 Treatt Plc and Watsco

The main advantage of trading using opposite Treatt Plc and Watsco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Treatt Plc 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 Treatt plc 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.