Correlation Between Boeing and Watsco
Can any of the company-specific risk be diversified away by investing in both Boeing 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 Boeing and Watsco into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Boeing and Watsco Inc, you can compare the effects of market volatilities on Boeing 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 Boeing with a short position of Watsco. Check out your portfolio center. Please also check ongoing floating volatility patterns of Boeing and Watsco.
Diversification Opportunities for Boeing and Watsco
Excellent diversification
The 3 months correlation between Boeing and Watsco is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding The Boeing and Watsco Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Watsco Inc and Boeing 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 The Boeing 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 Boeing i.e., Boeing and Watsco go up and down completely randomly.
Pair Corralation between Boeing and Watsco
Allowing for the 90-day total investment horizon The Boeing is expected to under-perform the Watsco. In addition to that, Boeing is 1.1 times more volatile than Watsco Inc. It trades about -0.01 of its total potential returns per unit of risk. Watsco Inc is currently generating about 0.1 per unit of volatility. If you would invest 24,074 in Watsco Inc on August 27, 2024 and sell it today you would earn a total of 31,405 from holding Watsco Inc or generate 130.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
The Boeing vs. Watsco Inc
Performance |
| Timeline |
| Boeing |
| Watsco Inc |
Boeing and Watsco Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Boeing and Watsco
The main advantage of trading using opposite Boeing and Watsco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Boeing 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.The idea behind The Boeing and Watsco Inc 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.| Watsco vs. Fastenal Company | Watsco vs. SiteOne Landscape Supply | Watsco vs. Ferguson Plc | Watsco vs. WW Grainger |
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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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