Correlation Between Watsco and Applied Industrial
Can any of the company-specific risk be diversified away by investing in both Watsco and Applied Industrial 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 Watsco and Applied Industrial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Watsco Inc and Applied Industrial Technologies, you can compare the effects of market volatilities on Watsco and Applied Industrial 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 Watsco with a short position of Applied Industrial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Watsco and Applied Industrial.
Diversification Opportunities for Watsco and Applied Industrial
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Watsco and Applied is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Watsco Inc and Applied Industrial Technologie in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Industrial and Watsco 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 Watsco Inc are associated (or correlated) with Applied Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Industrial has no effect on the direction of Watsco i.e., Watsco and Applied Industrial go up and down completely randomly.
Pair Corralation between Watsco and Applied Industrial
Assuming the 90 days horizon Watsco is expected to generate 1.6 times less return on investment than Applied Industrial. But when comparing it to its historical volatility, Watsco Inc is 1.21 times less risky than Applied Industrial. It trades about 0.09 of its potential returns per unit of risk. Applied Industrial Technologies is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 14,130 in Applied Industrial Technologies on August 28, 2024 and sell it today you would earn a total of 13,725 from holding Applied Industrial Technologies or generate 97.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.72% |
| Values | Daily Returns |
Watsco Inc vs. Applied Industrial Technologie
Performance |
| Timeline |
| Watsco Inc |
| Applied Industrial |
Watsco and Applied Industrial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Watsco and Applied Industrial
The main advantage of trading using opposite Watsco and Applied Industrial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Watsco position performs unexpectedly, Applied Industrial 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 Applied Industrial will offset losses from the drop in Applied Industrial's long position.| Watsco vs. DXP Enterprises | Watsco vs. Global Industrial Co | Watsco vs. EVI Industries | Watsco vs. Core Main |
| Applied Industrial vs. Global Industrial Co | Applied Industrial vs. WESCO International | Applied Industrial vs. MSC Industrial Direct |
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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.
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