Correlation Between Watts Water and Flowserve
Can any of the company-specific risk be diversified away by investing in both Watts Water and Flowserve 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 Watts Water and Flowserve into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Watts Water Technologies and Flowserve, you can compare the effects of market volatilities on Watts Water and Flowserve 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 Watts Water with a short position of Flowserve. Check out your portfolio center. Please also check ongoing floating volatility patterns of Watts Water and Flowserve.
Diversification Opportunities for Watts Water and Flowserve
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Watts and Flowserve is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Watts Water Technologies and Flowserve in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Flowserve and Watts Water 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 Watts Water Technologies are associated (or correlated) with Flowserve. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Flowserve has no effect on the direction of Watts Water i.e., Watts Water and Flowserve go up and down completely randomly.
Pair Corralation between Watts Water and Flowserve
Considering the 90-day investment horizon Watts Water is expected to generate 1.97 times less return on investment than Flowserve. But when comparing it to its historical volatility, Watts Water Technologies is 1.08 times less risky than Flowserve. It trades about 0.05 of its potential returns per unit of risk. Flowserve is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 2,854 in Flowserve on August 30, 2024 and sell it today you would earn a total of 3,277 from holding Flowserve or generate 114.82% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.8% |
| Values | Daily Returns |
Watts Water Technologies vs. Flowserve
Performance |
| Timeline |
| Watts Water Technologies |
| Flowserve |
Watts Water and Flowserve Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Watts Water and Flowserve
The main advantage of trading using opposite Watts Water and Flowserve positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Watts Water position performs unexpectedly, Flowserve 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 Flowserve will offset losses from the drop in Flowserve's long position.| Watts Water vs. IDEX Corporation | Watts Water vs. Donaldson | Watts Water vs. Gorman Rupp | Watts Water vs. Enerpac Tool Group |
| Flowserve vs. Illinois Tool Works | Flowserve vs. Pentair PLC | Flowserve vs. Emerson Electric | Flowserve vs. Smith AO |
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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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