Correlation Between Azek and Armstrong World
Can any of the company-specific risk be diversified away by investing in both Azek and Armstrong World 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 Armstrong World into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Azek Company and Armstrong World Industries, you can compare the effects of market volatilities on Azek and Armstrong World 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 Armstrong World. Check out your portfolio center. Please also check ongoing floating volatility patterns of Azek and Armstrong World.
Diversification Opportunities for Azek and Armstrong World
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Azek and Armstrong is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Azek Company and Armstrong World Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Armstrong World Indu 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 Armstrong World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Armstrong World Indu has no effect on the direction of Azek i.e., Azek and Armstrong World go up and down completely randomly.
Pair Corralation between Azek and Armstrong World
Given the investment horizon of 90 days Azek Company is expected to under-perform the Armstrong World. In addition to that, Azek is 2.52 times more volatile than Armstrong World Industries. It trades about -0.08 of its total potential returns per unit of risk. Armstrong World Industries is currently generating about -0.12 per unit of volatility. If you would invest 11,652 in Armstrong World Industries on March 7, 2024 and sell it today you would lose (272.00) from holding Armstrong World Industries or give up 2.33% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Azek Company vs. Armstrong World Industries
Performance |
Timeline |
Azek Company |
Armstrong World Indu |
Azek and Armstrong World Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Azek and Armstrong World
The main advantage of trading using opposite Azek and Armstrong World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Azek position performs unexpectedly, Armstrong World 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 Armstrong World will offset losses from the drop in Armstrong World's long position.Azek vs. Louisiana Pacific | Azek vs. Masco | Azek vs. Fortune Brands Innovations | Azek vs. Trane Technologies plc |
Armstrong World vs. Louisiana Pacific | Armstrong World vs. Masco | Armstrong World vs. Fortune Brands Innovations | Armstrong World vs. Trane Technologies plc |
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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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