Correlation Between Global Partners and Watsco
Can any of the company-specific risk be diversified away by investing in both Global Partners 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 Global Partners and Watsco into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Global Partners LP and Watsco Inc, you can compare the effects of market volatilities on Global Partners 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 Global Partners with a short position of Watsco. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global Partners and Watsco.
Diversification Opportunities for Global Partners and Watsco
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Global and Watsco is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Global Partners LP and Watsco Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Watsco Inc and Global Partners 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 Global Partners LP 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 Global Partners i.e., Global Partners and Watsco go up and down completely randomly.
Pair Corralation between Global Partners and Watsco
Assuming the 90 days trading horizon Global Partners is expected to generate 3.5 times less return on investment than Watsco. But when comparing it to its historical volatility, Global Partners LP is 4.31 times less risky than Watsco. It trades about 0.11 of its potential returns per unit of risk. Watsco Inc is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 24,213 in Watsco Inc on September 22, 2024 and sell it today you would earn a total of 24,220 from holding Watsco Inc or generate 100.03% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Global Partners LP vs. Watsco Inc
Performance |
| Timeline |
| Global Partners LP |
| Watsco Inc |
Global Partners and Watsco Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Global Partners and Watsco
The main advantage of trading using opposite Global Partners and Watsco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global Partners 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.| Global Partners vs. Watsco Inc | Global Partners vs. Fastenal Company | Global Partners vs. SiteOne Landscape Supply | Global Partners vs. Ferguson Plc |
| 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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