Correlation Between Watsco and OFX Group
Can any of the company-specific risk be diversified away by investing in both Watsco and OFX Group 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 OFX Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Watsco Inc and OFX Group Ltd, you can compare the effects of market volatilities on Watsco and OFX Group 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 OFX Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Watsco and OFX Group.
Diversification Opportunities for Watsco and OFX Group
Significant diversification
The 3 months correlation between Watsco and OFX is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Watsco Inc and OFX Group Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OFX Group 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 OFX Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OFX Group has no effect on the direction of Watsco i.e., Watsco and OFX Group go up and down completely randomly.
Pair Corralation between Watsco and OFX Group
Considering the 90-day investment horizon Watsco Inc is expected to generate 0.14 times more return on investment than OFX Group. However, Watsco Inc is 7.38 times less risky than OFX Group. It trades about -0.58 of its potential returns per unit of risk. OFX Group Ltd is currently generating about -0.22 per unit of risk. If you would invest 56,878 in Watsco Inc on September 24, 2024 and sell it today you would lose (8,084) from holding Watsco Inc or give up 14.21% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.24% |
| Values | Daily Returns |
Watsco Inc vs. OFX Group Ltd
Performance |
| Timeline |
| Watsco Inc |
| OFX Group |
Watsco and OFX Group Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Watsco and OFX Group
The main advantage of trading using opposite Watsco and OFX Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Watsco position performs unexpectedly, OFX Group 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 OFX Group will offset losses from the drop in OFX Group's long position.| Watsco vs. Fastenal Company | Watsco vs. SiteOne Landscape Supply | Watsco vs. Ferguson Plc | Watsco vs. WW Grainger |
| OFX Group vs. Watsco Inc | OFX Group vs. Fastenal Company | OFX Group vs. SiteOne Landscape Supply | OFX Group vs. Ferguson Plc |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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