Correlation Between Aluminumof China and Watsco
Can any of the company-specific risk be diversified away by investing in both Aluminumof China and Watsco 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 Aluminumof China and Watsco into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Aluminum of and Watsco Inc, you can compare the effects of market volatilities on Aluminumof China and Watsco 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 Aluminumof China with a short position of Watsco. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aluminumof China and Watsco.
Diversification Opportunities for Aluminumof China and Watsco
-0.25 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Aluminumof and Watsco is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Aluminum of and Watsco Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Watsco Inc and Aluminumof China 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 Aluminum of are associated (or correlated) with Watsco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Watsco Inc has no effect on the direction of Aluminumof China i.e., Aluminumof China and Watsco go up and down completely randomly.
Pair Corralation between Aluminumof China and Watsco
Assuming the 90 days horizon Aluminum of is expected to generate 2.75 times more return on investment than Watsco. However, Aluminumof China is 2.75 times more volatile than Watsco Inc. It trades about -0.02 of its potential returns per unit of risk. Watsco Inc is currently generating about -0.41 per unit of risk. If you would invest 57.00 in Aluminum of on October 12, 2024 and sell it today you would lose (1.00) from holding Aluminum of or give up 1.75% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Aluminum of vs. Watsco Inc
Performance |
| Timeline |
| Aluminumof China |
| Watsco Inc |
Aluminumof China and Watsco Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Aluminumof China and Watsco
The main advantage of trading using opposite Aluminumof China and Watsco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aluminumof China position performs unexpectedly, Watsco 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 Watsco will offset losses from the drop in Watsco's long position.| Aluminumof China vs. National Beverage Corp | Aluminumof China vs. Xinhua Winshare Publishing | Aluminumof China vs. DEVRY EDUCATION GRP | Aluminumof China vs. Strategic Education |
| Watsco vs. Platinum Investment Management | Watsco vs. Adtalem Global Education | Watsco vs. Q2M Managementberatung AG | Watsco vs. Xinhua Winshare Publishing |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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