Correlation Between Trex and Armstrong World

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

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

Diversification Opportunities for Trex and Armstrong World

0.91

Correlation Coefficient

Trex  Armstrong World

Almost no diversification

The 3 months correlation between Trex and Armstrong is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Trex 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 Trex 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 Trex 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 Trex i.e., Trex and Armstrong World go up and down completely randomly.

Pair Corralation between Trex and Armstrong World

Given the investment horizon of 90 days Trex Company is expected to under-perform the Armstrong World. In addition to that, Trex is 1.7 times more volatile than Armstrong World Industries. It trades about -0.13 of its total potential returns per unit of risk. Armstrong World Industries is currently generating about -0.1 per unit of volatility. If you would invest  12,210  in Armstrong World Industries on March 7, 2024 and sell it today you would lose (830.00) from holding Armstrong World Industries or give up 6.8% of portfolio value over 90 days.

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

Trex Company  vs.  Armstrong World Industries

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.

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 latest weak performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Trex and Armstrong World

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

The idea behind Trex Company and Armstrong World Industries 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.