Correlation Between Advanced Drainage and Interface
Can any of the company-specific risk be diversified away by investing in both Advanced Drainage and Interface 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 Advanced Drainage and Interface into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Advanced Drainage Systems and Interface, you can compare the effects of market volatilities on Advanced Drainage and Interface 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 Advanced Drainage with a short position of Interface. Check out your portfolio center. Please also check ongoing floating volatility patterns of Advanced Drainage and Interface.
Diversification Opportunities for Advanced Drainage and Interface
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Advanced and Interface is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Drainage Systems and Interface in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Interface and Advanced Drainage 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 Advanced Drainage Systems are associated (or correlated) with Interface. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Interface has no effect on the direction of Advanced Drainage i.e., Advanced Drainage and Interface go up and down completely randomly.
Pair Corralation between Advanced Drainage and Interface
Considering the 90-day investment horizon Advanced Drainage Systems is expected to generate 0.63 times more return on investment than Interface. However, Advanced Drainage Systems is 1.58 times less risky than Interface. It trades about -0.2 of its potential returns per unit of risk. Interface is currently generating about -0.29 per unit of risk. If you would invest 12,477 in Advanced Drainage Systems on November 29, 2024 and sell it today you would lose (1,089) from holding Advanced Drainage Systems or give up 8.73% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Advanced Drainage Systems vs. Interface
Performance |
| Timeline |
| Advanced Drainage Systems |
| Interface |
Advanced Drainage and Interface Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Advanced Drainage and Interface
The main advantage of trading using opposite Advanced Drainage and Interface positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Advanced Drainage position performs unexpectedly, Interface 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 Interface will offset losses from the drop in Interface's long position.| Advanced Drainage vs. Apogee Enterprises | Advanced Drainage vs. Azek Company | Advanced Drainage vs. Lennox International | Advanced Drainage vs. Gibraltar Industries |
| Interface vs. Quanex Building Products | Interface vs. Janus International Group | Interface vs. Apogee Enterprises | Interface 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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