Correlation Between Watts Water and Gates Industrial

Can any of the company-specific risk be diversified away by investing in both Watts Water and Gates Industrial 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 Gates Industrial 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 Gates Industrial, you can compare the effects of market volatilities on Watts Water and Gates Industrial 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 Gates Industrial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Watts Water and Gates Industrial.

Diversification Opportunities for Watts Water and Gates Industrial

0.88

Correlation Coefficient

Watts Water  Gates Industrial

Very poor diversification

The 3 months correlation between Watts and Gates is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Watts Water Technologies and Gates Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gates Industrial 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 Gates Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gates Industrial has no effect on the direction of Watts Water i.e., Watts Water and Gates Industrial go up and down completely randomly.

Pair Corralation between Watts Water and Gates Industrial

Considering the 90-day investment horizon Watts Water Technologies is expected to generate 1.21 times more return on investment than Gates Industrial. However, Watts Water is 1.21 times more volatile than Gates Industrial. It trades about 0.18 of its potential returns per unit of risk. Gates Industrial is currently generating about 0.21 per unit of risk. If you would invest  21,321  in Watts Water Technologies on May 4, 2025 and sell it today you would earn a total of  4,581  from holding Watts Water Technologies or generate 21.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Watts Water Technologies  vs.  Gates Industrial

Watts Water Technologies

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Watts Water Technologies are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Watts Water unveiled solid returns over the last few months and may actually be approaching a breakup point.

Gates Industrial

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Gates Industrial are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Gates Industrial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Watts Water and Gates Industrial

The main advantage of trading using opposite Watts Water and Gates Industrial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Watts Water position performs unexpectedly, Gates Industrial 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 Gates Industrial will offset losses from the drop in Gates Industrial's long position.

The idea behind Watts Water Technologies and Gates Industrial 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.

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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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.