Correlation Between Watsco and Bakkt Holdings

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

By analyzing existing cross correlation between Watsco Inc and Bakkt Holdings Warrant, you can compare the effects of market volatilities on Watsco and Bakkt Holdings 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 Bakkt Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Watsco and Bakkt Holdings.

Diversification Opportunities for Watsco and Bakkt Holdings

0.58

Correlation Coefficient

Watsco  Bakkt Holdings

Very weak diversification

The 3 months correlation between Watsco and Bakkt is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Watsco Inc and Bakkt Holdings Warrant in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bakkt Holdings Warrant 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 Bakkt Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bakkt Holdings Warrant has no effect on the direction of Watsco i.e., Watsco and Bakkt Holdings go up and down completely randomly.

Pair Corralation between Watsco and Bakkt Holdings

Considering the 90-day investment horizon Watsco Inc is expected to under-perform the Bakkt Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Watsco Inc is 5.67 times less risky than Bakkt Holdings. The stock trades about -0.38 of its potential returns per unit of risk. The Bakkt Holdings Warrant is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  41.00  in Bakkt Holdings Warrant on September 22, 2024 and sell it today you would earn a total of  16.00  from holding Bakkt Holdings Warrant or generate 39.02% return on investment over 90 days.

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

Watsco Inc  vs.  Bakkt Holdings Warrant

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.

Bakkt Holdings Warrant

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bakkt Holdings Warrant are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Bakkt Holdings unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Watsco and Bakkt Holdings

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

The idea behind Watsco Inc and Bakkt Holdings Warrant 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.