Correlation Between Watsco and Global Partners

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

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

Diversification Opportunities for Watsco and Global Partners

0.6

Correlation Coefficient

Watsco  Global Partners

Poor diversification

The 3 months correlation between Watsco and Global is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Watsco Inc and Global Partners LP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Partners LP 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 Global Partners. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Partners LP has no effect on the direction of Watsco i.e., Watsco and Global Partners go up and down completely randomly.

Pair Corralation between Watsco and Global Partners

Considering the 90-day investment horizon Watsco Inc is expected to under-perform the Global Partners. In addition to that, Watsco is 6.55 times more volatile than Global Partners LP. It trades about -0.01 of its total potential returns per unit of risk. Global Partners LP is currently generating about 0.16 per unit of volatility. If you would invest  2,541  in Global Partners LP on September 23, 2024 and sell it today you would earn a total of  68.00  from holding Global Partners LP or generate 2.68% return on investment over 90 days.

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

Watsco Inc  vs.  Global Partners LP

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.

Global Partners LP

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Global Partners LP are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Global Partners is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Watsco and Global Partners

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

The idea behind Watsco Inc and Global Partners LP 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.