Correlation Between Air Lease and Trex
Can any of the company-specific risk be diversified away by investing in both Air Lease and Trex 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 Air Lease and Trex into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Air Lease and Trex Company, you can compare the effects of market volatilities on Air Lease and Trex 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 Air Lease with a short position of Trex. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air Lease and Trex.
Diversification Opportunities for Air Lease and Trex
Poor diversification
The 3 months correlation between Air and Trex is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Air Lease and Trex Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trex Company and Air Lease 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 Air Lease are associated (or correlated) with Trex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trex Company has no effect on the direction of Air Lease i.e., Air Lease and Trex go up and down completely randomly.
Pair Corralation between Air Lease and Trex
Allowing for the 90-day total investment horizon Air Lease is expected to generate 1.5 times less return on investment than Trex. But when comparing it to its historical volatility, Air Lease is 1.4 times less risky than Trex. It trades about 0.03 of its potential returns per unit of risk. Trex Company is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 5,529 in Trex Company on August 27, 2024 and sell it today you would earn a total of 1,696 from holding Trex Company or generate 30.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Air Lease vs. Trex Company
Performance |
| Timeline |
| Air Lease |
| Trex Company |
Air Lease and Trex Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Air Lease and Trex
The main advantage of trading using opposite Air Lease and Trex positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air Lease position performs unexpectedly, Trex 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 Trex will offset losses from the drop in Trex's long position.| Air Lease vs. Alta Equipment Group | Air Lease vs. McGrath RentCorp | Air Lease vs. Herc Holdings | Air Lease vs. HE Equipment Services |
| Trex vs. Quanex Building Products | Trex vs. Armstrong World Industries | Trex vs. Gibraltar Industries | Trex vs. Apogee Enterprises |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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