Correlation Between Watsco and Titan Machinery

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

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

Diversification Opportunities for Watsco and Titan Machinery

0.79

Correlation Coefficient

Watsco  Titan Machinery

Poor diversification

The 3 months correlation between Watsco and Titan is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Watsco Inc and Titan Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Titan Machinery and Watsco 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 Watsco Inc are associated (or correlated) with Titan Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Titan Machinery has no effect on the direction of Watsco i.e., Watsco and Titan Machinery go up and down completely randomly.

Pair Corralation between Watsco and Titan Machinery

Assuming the 90 days horizon Watsco Inc is expected to under-perform the Titan Machinery. But the stock apears to be less risky and, when comparing its historical volatility, Watsco Inc is 2.18 times less risky than Titan Machinery. The stock trades about -0.62 of its potential returns per unit of risk. The Titan Machinery is currently generating about -0.23 of returns per unit of risk over similar time horizon. If you would invest  1,440  in Titan Machinery on September 24, 2024 and sell it today you would lose (170.00) from holding Titan Machinery or give up 11.81% of portfolio value over 90 days.

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

Watsco Inc  vs.  Titan Machinery

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 latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Titan Machinery

Risk-Adjusted Performance

3 of 100

Insignificant

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

Pair Trading with Watsco and Titan Machinery

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

The idea behind Watsco Inc and Titan Machinery 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.