Correlation Between Watsco and Cromwell Property

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

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

Diversification Opportunities for Watsco and Cromwell Property

0.16

Correlation Coefficient

Watsco  Cromwell Property

Average diversification

The 3 months correlation between Watsco and Cromwell is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Watsco Inc and Cromwell Property Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cromwell Property 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 Cromwell Property. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cromwell Property has no effect on the direction of Watsco i.e., Watsco and Cromwell Property go up and down completely randomly.

Pair Corralation between Watsco and Cromwell Property

Considering the 90-day investment horizon Watsco Inc is expected to generate 1.78 times more return on investment than Cromwell Property. However, Watsco is 1.78 times more volatile than Cromwell Property Group. It trades about 0.06 of its potential returns per unit of risk. Cromwell Property Group is currently generating about -0.03 per unit of risk. If you would invest  36,450  in Watsco Inc on September 26, 2024 and sell it today you would earn a total of  12,344  from holding Watsco Inc or generate 33.87% return on investment over 90 days.

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

Watsco Inc  vs.  Cromwell Property Group

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.

Cromwell Property

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cromwell Property Group are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, Cromwell Property is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Watsco and Cromwell Property

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

The idea behind Watsco Inc and Cromwell Property Group 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 Managers module to screen money managers from public funds and ETFs managed around the world.