Correlation Between AAON and Advanced Drainage
Can any of the company-specific risk be diversified away by investing in both AAON and Advanced Drainage 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 AAON and Advanced Drainage into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between AAON Inc and Advanced Drainage Systems, you can compare the effects of market volatilities on AAON and Advanced Drainage 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 AAON with a short position of Advanced Drainage. Check out your portfolio center. Please also check ongoing floating volatility patterns of AAON and Advanced Drainage.
Diversification Opportunities for AAON and Advanced Drainage
-0.38 | Correlation Coefficient |
Very good diversification
The 3 months correlation between AAON and Advanced is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding AAON Inc and Advanced Drainage Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advanced Drainage Systems and AAON 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 AAON Inc are associated (or correlated) with Advanced Drainage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advanced Drainage Systems has no effect on the direction of AAON i.e., AAON and Advanced Drainage go up and down completely randomly.
Pair Corralation between AAON and Advanced Drainage
Given the investment horizon of 90 days AAON Inc is expected to generate 1.15 times more return on investment than Advanced Drainage. However, AAON is 1.15 times more volatile than Advanced Drainage Systems. It trades about 0.11 of its potential returns per unit of risk. Advanced Drainage Systems is currently generating about -0.04 per unit of risk. If you would invest 8,373 in AAON Inc on August 27, 2024 and sell it today you would earn a total of 5,369 from holding AAON Inc or generate 64.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
AAON Inc vs. Advanced Drainage Systems
Performance |
| Timeline |
| AAON Inc |
| Advanced Drainage Systems |
AAON and Advanced Drainage Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with AAON and Advanced Drainage
The main advantage of trading using opposite AAON and Advanced Drainage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AAON position performs unexpectedly, Advanced Drainage 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 Advanced Drainage will offset losses from the drop in Advanced Drainage's long position.| AAON vs. Quanex Building Products | AAON vs. Gibraltar Industries | AAON vs. Armstrong World Industries | AAON vs. Beacon Roofing Supply |
| Advanced Drainage vs. Apogee Enterprises | Advanced Drainage vs. Azek Company | Advanced Drainage vs. Lennox International | Advanced Drainage vs. Gibraltar Industries |
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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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