Correlation Between Azek and Trex

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

By analyzing existing cross correlation between Azek Company and Trex Company, you can compare the effects of market volatilities on Azek 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 Azek with a short position of Trex. Check out your portfolio center. Please also check ongoing floating volatility patterns of Azek and Trex.

Diversification Opportunities for Azek and Trex

0.82

Correlation Coefficient

Azek  Trex

Very poor diversification

The 3 months correlation between Azek and Trex is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Azek Company and Trex Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trex Company 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 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 Azek i.e., Azek and Trex go up and down completely randomly.

Pair Corralation between Azek and Trex

Given the investment horizon of 90 days Azek Company is expected to generate 0.98 times more return on investment than Trex. However, Azek Company is 1.02 times less risky than Trex. It trades about -0.07 of its potential returns per unit of risk. Trex Company is currently generating about -0.13 per unit of risk. If you would invest  4,935  in Azek Company on March 7, 2024 and sell it today you would lose (418.00) from holding Azek Company or give up 8.47% 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.  Trex Company

Azek Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Azek Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Trex Company

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days Trex Company has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in July 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Azek and Trex

The main advantage of trading using opposite Azek and Trex positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Azek 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.

The idea behind Azek Company and Trex Company 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.

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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..