Correlation Between Watsco and Resideo Technologies
Can any of the company-specific risk be diversified away by investing in both Watsco and Resideo Technologies 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 Resideo Technologies into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Watsco Inc and Resideo Technologies, you can compare the effects of market volatilities on Watsco and Resideo Technologies 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 Resideo Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Watsco and Resideo Technologies.
Diversification Opportunities for Watsco and Resideo Technologies
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Watsco and Resideo is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Watsco Inc and Resideo Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Resideo Technologies 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 Resideo Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Resideo Technologies has no effect on the direction of Watsco i.e., Watsco and Resideo Technologies go up and down completely randomly.
Pair Corralation between Watsco and Resideo Technologies
Considering the 90-day investment horizon Watsco Inc is expected to generate 0.74 times more return on investment than Resideo Technologies. However, Watsco Inc is 1.34 times less risky than Resideo Technologies. It trades about 0.1 of its potential returns per unit of risk. Resideo Technologies is currently generating about 0.06 per unit of risk. If you would invest 24,074 in Watsco Inc on August 27, 2024 and sell it today you would earn a total of 31,405 from holding Watsco Inc or generate 130.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Watsco Inc vs. Resideo Technologies
Performance |
| Timeline |
| Watsco Inc |
| Resideo Technologies |
Watsco and Resideo Technologies Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Watsco and Resideo Technologies
The main advantage of trading using opposite Watsco and Resideo Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Watsco position performs unexpectedly, Resideo Technologies 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 Resideo Technologies will offset losses from the drop in Resideo Technologies' long position.| Watsco vs. Fastenal Company | Watsco vs. SiteOne Landscape Supply | Watsco vs. Ferguson Plc | Watsco vs. WW Grainger |
| Resideo Technologies vs. Allegion PLC | Resideo Technologies vs. MSA Safety | Resideo Technologies vs. NL Industries | Resideo Technologies vs. Brady |
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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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