Correlation Between MSC Industrial and Watsco
Can any of the company-specific risk be diversified away by investing in both MSC Industrial 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 MSC Industrial and Watsco into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MSC Industrial Direct and Watsco Inc, you can compare the effects of market volatilities on MSC Industrial 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 MSC Industrial with a short position of Watsco. Check out your portfolio center. Please also check ongoing floating volatility patterns of MSC Industrial and Watsco.
Diversification Opportunities for MSC Industrial and Watsco
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between MSC and Watsco is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding MSC Industrial Direct and Watsco Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Watsco Inc and MSC 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 MSC Industrial Direct 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 MSC Industrial i.e., MSC Industrial and Watsco go up and down completely randomly.
Pair Corralation between MSC Industrial and Watsco
Considering the 90-day investment horizon MSC Industrial is expected to generate 7.5 times less return on investment than Watsco. But when comparing it to its historical volatility, MSC Industrial Direct is 1.18 times less risky than Watsco. It trades about 0.02 of its potential returns per unit of risk. Watsco Inc is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 25,258 in Watsco Inc on August 23, 2024 and sell it today you would earn a total of 29,366 from holding Watsco Inc or generate 116.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
MSC Industrial Direct vs. Watsco Inc
Performance |
| Timeline |
| MSC Industrial Direct |
| Watsco Inc |
MSC Industrial and Watsco Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with MSC Industrial and Watsco
The main advantage of trading using opposite MSC Industrial and Watsco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MSC Industrial 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.| MSC Industrial vs. DXP Enterprises | MSC Industrial vs. Core Main | MSC Industrial vs. WW Grainger | MSC Industrial vs. SiteOne Landscape Supply |
| 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.
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