Correlation Between Azek and Advanced Drainage
Can any of the company-specific risk be diversified away by investing in both Azek 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 Azek and Advanced Drainage into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Azek Company and Advanced Drainage Systems, you can compare the effects of market volatilities on Azek 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 Azek with a short position of Advanced Drainage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Azek and Advanced Drainage.
Diversification Opportunities for Azek and Advanced Drainage
-0.37 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Azek and Advanced is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Azek Company 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 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 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 Azek i.e., Azek and Advanced Drainage go up and down completely randomly.
Pair Corralation between Azek and Advanced Drainage
Given the investment horizon of 90 days Azek Company is expected to generate 0.99 times more return on investment than Advanced Drainage. However, Azek Company is 1.01 times less risky than Advanced Drainage. It trades about 0.07 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 2,655 in Azek Company on November 1, 2024 and sell it today you would earn a total of 2,570 from holding Azek Company or generate 96.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Azek Company vs. Advanced Drainage Systems
Performance |
| Timeline |
| Azek Company |
| Advanced Drainage Systems |
Azek and Advanced Drainage Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Azek and Advanced Drainage
The main advantage of trading using opposite Azek and Advanced Drainage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Azek 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.| Azek vs. Louisiana Pacific | Azek vs. Masco | Azek vs. Fortune Brands Innovations | Azek vs. Trane Technologies plc |
| 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 Global Correlations module to find global opportunities by holding instruments from different markets.
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