Correlation Between Armstrong World and Azek

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

Diversification Opportunities for Armstrong World and Azek

0.41

Correlation Coefficient

Armstrong World  Azek

Very weak diversification

The 3 months correlation between Armstrong and Azek is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Armstrong World Industries and Azek Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Azek Company 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 Azek. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Azek Company has no effect on the direction of Armstrong World i.e., Armstrong World and Azek go up and down completely randomly.

Pair Corralation between Armstrong World and Azek

Considering the 90-day investment horizon Armstrong World Industries is expected to generate 0.69 times more return on investment than Azek. However, Armstrong World Industries is 1.45 times less risky than Azek. It trades about 0.11 of its potential returns per unit of risk. Azek Company is currently generating about 0.08 per unit of risk. If you would invest  6,779  in Armstrong World Industries on December 1, 2024 and sell it today you would earn a total of  8,587  from holding Armstrong World Industries or generate 126.67% return on investment over 90 days.

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

Armstrong World Industries  vs.  Azek Company

Armstrong World Indu

Risk-Adjusted Performance

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 current stock price confusion, may contribute to short-horizon losses for the traders.

Azek Company

Risk-Adjusted Performance

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.

Pair Trading with Armstrong World and Azek

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

The idea behind Armstrong World Industries and Azek 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.