Correlation Between Watsco and WW Grainger
Can any of the company-specific risk be diversified away by investing in both Watsco and WW Grainger 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 WW Grainger into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Watsco Inc and WW Grainger, you can compare the effects of market volatilities on Watsco and WW Grainger 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 WW Grainger. Check out your portfolio center. Please also check ongoing floating volatility patterns of Watsco and WW Grainger.
Diversification Opportunities for Watsco and WW Grainger
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Watsco and GWW is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Watsco Inc and WW Grainger in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WW Grainger 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 WW Grainger. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WW Grainger has no effect on the direction of Watsco i.e., Watsco and WW Grainger go up and down completely randomly.
Pair Corralation between Watsco and WW Grainger
Considering the 90-day investment horizon Watsco Inc is expected to generate 0.67 times more return on investment than WW Grainger. However, Watsco Inc is 1.5 times less risky than WW Grainger. It trades about -0.12 of its potential returns per unit of risk. WW Grainger is currently generating about -0.25 per unit of risk. If you would invest 49,628 in Watsco Inc on November 18, 2024 and sell it today you would lose (1,259) from holding Watsco Inc or give up 2.54% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Watsco Inc vs. WW Grainger
Performance |
| Timeline |
| Watsco Inc |
| WW Grainger |
Watsco and WW Grainger Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Watsco and WW Grainger
The main advantage of trading using opposite Watsco and WW Grainger positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Watsco position performs unexpectedly, WW Grainger 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 WW Grainger will offset losses from the drop in WW Grainger's long position.| Watsco vs. Fastenal Company | Watsco vs. SiteOne Landscape Supply | Watsco vs. Ferguson Plc | Watsco vs. WW Grainger |
| WW Grainger vs. Watsco Inc | WW Grainger vs. Pool Corporation | WW Grainger vs. MSC Industrial Direct | WW Grainger vs. Applied Industrial Technologies |
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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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