Correlation Between Gates Industrial and Watts Water
Can any of the company-specific risk be diversified away by investing in both Gates Industrial and Watts Water 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 Gates Industrial and Watts Water into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Gates Industrial and Watts Water Technologies, you can compare the effects of market volatilities on Gates Industrial and Watts Water 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 Gates Industrial with a short position of Watts Water. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gates Industrial and Watts Water.
Diversification Opportunities for Gates Industrial and Watts Water
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Gates and Watts is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Gates Industrial and Watts Water Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Watts Water Technologies and Gates Industrial 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 Gates Industrial are associated (or correlated) with Watts Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Watts Water Technologies has no effect on the direction of Gates Industrial i.e., Gates Industrial and Watts Water go up and down completely randomly.
Pair Corralation between Gates Industrial and Watts Water
Given the investment horizon of 90 days Gates Industrial is expected to generate 0.74 times more return on investment than Watts Water. However, Gates Industrial is 1.34 times less risky than Watts Water. It trades about 0.41 of its potential returns per unit of risk. Watts Water Technologies is currently generating about 0.2 per unit of risk. If you would invest 1,930 in Gates Industrial on August 31, 2024 and sell it today you would earn a total of 286.00 from holding Gates Industrial or generate 14.82% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Gates Industrial vs. Watts Water Technologies
Performance |
| Timeline |
| Gates Industrial |
| Watts Water Technologies |
Gates Industrial and Watts Water Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Gates Industrial and Watts Water
The main advantage of trading using opposite Gates Industrial and Watts Water positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gates Industrial position performs unexpectedly, Watts Water 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 Watts Water will offset losses from the drop in Watts Water's long position.| Gates Industrial vs. Crane NXT Co | Gates Industrial vs. Donaldson | Gates Industrial vs. ITT Inc | Gates Industrial vs. Franklin Electric Co |
| Watts Water vs. Standex International | Watts Water vs. Donaldson | Watts Water vs. CSW Industrials | Watts Water vs. Franklin Electric Co |
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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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