Correlation Between Johnson Controls and Trex
Can any of the company-specific risk be diversified away by investing in both Johnson Controls 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 Johnson Controls and Trex into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Johnson Controls International and Trex Company, you can compare the effects of market volatilities on Johnson Controls 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 Johnson Controls with a short position of Trex. Check out your portfolio center. Please also check ongoing floating volatility patterns of Johnson Controls and Trex.
Diversification Opportunities for Johnson Controls and Trex
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Johnson and Trex is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Controls International and Trex Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trex Company and Johnson Controls 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 Johnson Controls International 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 Johnson Controls i.e., Johnson Controls and Trex go up and down completely randomly.
Pair Corralation between Johnson Controls and Trex
Considering the 90-day investment horizon Johnson Controls International is expected to generate 0.8 times more return on investment than Trex. However, Johnson Controls International is 1.24 times less risky than Trex. It trades about 0.17 of its potential returns per unit of risk. Trex Company is currently generating about 0.05 per unit of risk. If you would invest 7,110 in Johnson Controls International on August 24, 2024 and sell it today you would earn a total of 1,289 from holding Johnson Controls International or generate 18.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Johnson Controls International vs. Trex Company
Performance |
| Timeline |
| Johnson Controls Int |
| Trex Company |
Johnson Controls and Trex Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Johnson Controls and Trex
The main advantage of trading using opposite Johnson Controls and Trex positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Johnson Controls 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.| Johnson Controls vs. Carrier Global Corp | Johnson Controls vs. Lennox International | Johnson Controls vs. Masco | Johnson Controls vs. Carlisle Companies Incorporated |
| 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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