Correlation Between Advanced Drainage and Patrick Industries

Can any of the company-specific risk be diversified away by investing in both Advanced Drainage and Patrick Industries 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 Patrick Industries 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 Patrick Industries, you can compare the effects of market volatilities on Advanced Drainage and Patrick Industries 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 Patrick Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Advanced Drainage and Patrick Industries.

Diversification Opportunities for Advanced Drainage and Patrick Industries

0.84

Correlation Coefficient

Advanced Drainage  Patrick Industries

Very poor diversification

The 3 months correlation between Advanced and Patrick is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Drainage Systems and Patrick Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Patrick Industries 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 Patrick Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Patrick Industries has no effect on the direction of Advanced Drainage i.e., Advanced Drainage and Patrick Industries go up and down completely randomly.

Pair Corralation between Advanced Drainage and Patrick Industries

Considering the 90-day investment horizon Advanced Drainage Systems is expected to generate 1.07 times more return on investment than Patrick Industries. However, Advanced Drainage is 1.07 times more volatile than Patrick Industries. It trades about 0.13 of its potential returns per unit of risk. Patrick Industries is currently generating about 0.1 per unit of risk. If you would invest  8,624  in Advanced Drainage Systems on January 26, 2024 and sell it today you would earn a total of  7,408  from holding Advanced Drainage Systems or generate 85.9% return on investment over 90 days.

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

Advanced Drainage Systems  vs.  Patrick Industries

Advanced Drainage Systems

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Advanced Drainage Systems are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent primary indicators, Advanced Drainage unveiled solid returns over the last few months and may actually be approaching a breakup point.

Patrick Industries

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Patrick Industries are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Patrick Industries is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Advanced Drainage and Patrick Industries

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

The idea behind Advanced Drainage Systems and Patrick 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.

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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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.