The 18-year-old has signed a four-and-a-half-year contract with the Premier League side.
The Venezuela Under-20 international will remain on loan in Spain with La Liga outfit Granada.
Penaranda has scored four goals in 13 club appearances this season.
OFFICIAL: Welcome to #watfordfc, Adalberto Penaranda. The 18-year-old forward has signed a 4.5yr deal with us. pic.twitter.com/0Xy3dzniIx
— Watford FC (@WatfordFC) February 1, 2016
