Correlation Between Watsco and Treatt Plc

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

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

Diversification Opportunities for Watsco and Treatt Plc

-0.29

Correlation Coefficient

Watsco  Treatt Plc

Very good diversification

The 3 months correlation between Watsco and Treatt is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Watsco Inc and Treatt plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Treatt plc 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 Treatt Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Treatt plc has no effect on the direction of Watsco i.e., Watsco and Treatt Plc go up and down completely randomly.

Pair Corralation between Watsco and Treatt Plc

Considering the 90-day investment horizon Watsco Inc is expected to under-perform the Treatt Plc. But the stock apears to be less risky and, when comparing its historical volatility, Watsco Inc is 2.22 times less risky than Treatt Plc. The stock trades about -0.01 of its potential returns per unit of risk. The Treatt plc is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  575.00  in Treatt plc on September 26, 2024 and sell it today you would earn a total of  40.00  from holding Treatt plc or generate 6.96% return on investment over 90 days.

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

Watsco Inc  vs.  Treatt plc

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.

Treatt plc

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Treatt plc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Treatt Plc may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Watsco and Treatt Plc

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

The idea behind Watsco Inc and Treatt plc 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.