Correlation Between WATSCO INC and WESCO International

Can any of the company-specific risk be diversified away by investing in both WATSCO INC and WESCO International 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 WESCO International 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 WESCO International, you can compare the effects of market volatilities on WATSCO INC and WESCO International 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 WESCO International. Check out your portfolio center. Please also check ongoing floating volatility patterns of WATSCO INC and WESCO International.

Diversification Opportunities for WATSCO INC and WESCO International

-0.54

Correlation Coefficient

WATSCO INC  WESCO International

Excellent diversification

The 3 months correlation between WATSCO and WESCO is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding WATSCO INC B and WESCO International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WESCO International 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 WESCO International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WESCO International has no effect on the direction of WATSCO INC i.e., WATSCO INC and WESCO International go up and down completely randomly.

Pair Corralation between WATSCO INC and WESCO International

Assuming the 90 days trading horizon WATSCO INC B is expected to under-perform the WESCO International. But the stock apears to be less risky and, when comparing its historical volatility, WATSCO INC B is 1.89 times less risky than WESCO International. The stock trades about -0.01 of its potential returns per unit of risk. The WESCO International is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  15,266  in WESCO International on September 26, 2024 and sell it today you would earn a total of  1,734  from holding WESCO International or generate 11.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

WATSCO INC B  vs.  WESCO International

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.

WESCO International

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in WESCO International are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, WESCO International reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with WATSCO INC and WESCO International

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

The idea behind WATSCO INC B and WESCO International 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .