Correlation Between Armstrong World and Carlisle Companies

Can any of the company-specific risk be diversified away by investing in both Armstrong World and Carlisle Companies 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 Armstrong World and Carlisle Companies into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Armstrong World Industries and Carlisle Companies Incorporated, you can compare the effects of market volatilities on Armstrong World and Carlisle Companies 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 Armstrong World with a short position of Carlisle Companies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Armstrong World and Carlisle Companies.

Diversification Opportunities for Armstrong World and Carlisle Companies

-0.43

Correlation Coefficient

Armstrong World  Carlisle Companies

Very good diversification

The 3 months correlation between Armstrong and Carlisle is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Armstrong World Industries and Carlisle Companies Incorporate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carlisle Companies and Armstrong World 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 Armstrong World Industries are associated (or correlated) with Carlisle Companies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carlisle Companies has no effect on the direction of Armstrong World i.e., Armstrong World and Carlisle Companies go up and down completely randomly.

Pair Corralation between Armstrong World and Carlisle Companies

Considering the 90-day investment horizon Armstrong World Industries is expected to under-perform the Carlisle Companies. But the stock apears to be less risky and, when comparing its historical volatility, Armstrong World Industries is 1.38 times less risky than Carlisle Companies. The stock trades about -0.06 of its potential returns per unit of risk. The Carlisle Companies Incorporated is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  34,928  in Carlisle Companies Incorporated on February 29, 2024 and sell it today you would earn a total of  7,214  from holding Carlisle Companies Incorporated or generate 20.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Armstrong World Industries  vs.  Carlisle Companies Incorporate

Armstrong World Indu

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Armstrong World Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Armstrong World is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Carlisle Companies

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Carlisle Companies Incorporated are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent basic indicators, Carlisle Companies disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Armstrong World and Carlisle Companies

The main advantage of trading using opposite Armstrong World and Carlisle Companies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Armstrong World position performs unexpectedly, Carlisle Companies 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 Carlisle Companies will offset losses from the drop in Carlisle Companies' long position.

The idea behind Armstrong World Industries and Carlisle Companies Incorporated pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .