Correlation Between WATSCO INC and RATIONAL Aktiengesellscha

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

By analyzing existing cross correlation between WATSCO INC B and RATIONAL Aktiengesellschaft, you can compare the effects of market volatilities on WATSCO INC and RATIONAL Aktiengesellscha 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 INC with a short position of RATIONAL Aktiengesellscha. Check out your portfolio center. Please also check ongoing floating volatility patterns of WATSCO INC and RATIONAL Aktiengesellscha.

Diversification Opportunities for WATSCO INC and RATIONAL Aktiengesellscha

0.65

Correlation Coefficient

WATSCO INC  RATIONAL Aktiengesellscha

Poor diversification

The 3 months correlation between WATSCO and RATIONAL is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding WATSCO INC B and RATIONAL Aktiengesellschaft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RATIONAL Aktiengesellscha and WATSCO INC 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 B are associated (or correlated) with RATIONAL Aktiengesellscha. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RATIONAL Aktiengesellscha has no effect on the direction of WATSCO INC i.e., WATSCO INC and RATIONAL Aktiengesellscha go up and down completely randomly.

Pair Corralation between WATSCO INC and RATIONAL Aktiengesellscha

Assuming the 90 days trading horizon WATSCO INC B is expected to generate 1.28 times more return on investment than RATIONAL Aktiengesellscha. However, WATSCO INC is 1.28 times more volatile than RATIONAL Aktiengesellschaft. It trades about 0.07 of its potential returns per unit of risk. RATIONAL Aktiengesellschaft is currently generating about 0.06 per unit of risk. If you would invest  22,069  in WATSCO INC B on September 26, 2024 and sell it today you would earn a total of  19,331  from holding WATSCO INC B or generate 87.59% return on investment over 90 days.

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

WATSCO INC B  vs.  RATIONAL Aktiengesellschaft

WATSCO INC B

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WATSCO INC B has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, WATSCO INC is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

RATIONAL Aktiengesellscha

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RATIONAL Aktiengesellschaft has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with WATSCO INC and RATIONAL Aktiengesellscha

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

The idea behind WATSCO INC B and RATIONAL Aktiengesellschaft 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.