Correlation Between Azek and Trex
Can any of the company-specific risk be diversified away by investing in both Azek 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 Azek and Trex into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Azek Company and Trex Company, you can compare the effects of market volatilities on Azek 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 Azek with a short position of Trex. Check out your portfolio center. Please also check ongoing floating volatility patterns of Azek and Trex.
Diversification Opportunities for Azek and Trex
Very poor diversification
The 3 months correlation between Azek and Trex is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Azek Company and Trex Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trex Company and Azek 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 Azek Company 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 Azek i.e., Azek and Trex go up and down completely randomly.
Pair Corralation between Azek and Trex
Given the investment horizon of 90 days Azek Company is expected to generate 0.79 times more return on investment than Trex. However, Azek Company is 1.26 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 per unit of risk. If you would invest 4,677 in Azek Company on August 24, 2024 and sell it today you would earn a total of 304.00 from holding Azek Company or generate 6.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Azek Company vs. Trex Company
Performance |
| Timeline |
| Azek Company |
| Trex Company |
Azek and Trex Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Azek and Trex
The main advantage of trading using opposite Azek and Trex positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Azek 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.| Azek vs. Louisiana Pacific | Azek vs. Masco | Azek vs. Fortune Brands Innovations | Azek vs. Trane Technologies plc |
| 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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