Correlation Between Watsco and EVI Industries
Can any of the company-specific risk be diversified away by investing in both Watsco and EVI Industries 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 EVI Industries into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Watsco Inc and EVI Industries, you can compare the effects of market volatilities on Watsco and EVI Industries 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 EVI Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Watsco and EVI Industries.
Diversification Opportunities for Watsco and EVI Industries
0.44 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Watsco and EVI is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Watsco Inc and EVI Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EVI Industries 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 EVI Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EVI Industries has no effect on the direction of Watsco i.e., Watsco and EVI Industries go up and down completely randomly.
Pair Corralation between Watsco and EVI Industries
Assuming the 90 days horizon Watsco Inc is expected to generate 0.62 times more return on investment than EVI Industries. However, Watsco Inc is 1.62 times less risky than EVI Industries. It trades about 0.16 of its potential returns per unit of risk. EVI Industries is currently generating about -0.04 per unit of risk. If you would invest 49,500 in Watsco Inc on August 28, 2024 and sell it today you would earn a total of 4,000 from holding Watsco Inc or generate 8.08% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Watsco Inc vs. EVI Industries
Performance |
| Timeline |
| Watsco Inc |
| EVI Industries |
Watsco and EVI Industries Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Watsco and EVI Industries
The main advantage of trading using opposite Watsco and EVI Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Watsco position performs unexpectedly, EVI Industries 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 EVI Industries will offset losses from the drop in EVI Industries' long position.The idea behind Watsco Inc and EVI Industries 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.| EVI Industries vs. DXP Enterprises | EVI Industries vs. Global Industrial Co | EVI Industries vs. Core Main | EVI Industries vs. Watsco Inc |
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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