Correlation Between Armstrong World and Geberit AG

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

Diversification Opportunities for Armstrong World and Geberit AG

-0.56

Correlation Coefficient

Armstrong World  Geberit AG

Excellent diversification

The 3 months correlation between Armstrong and Geberit is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Armstrong World Industries and Geberit AG ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Geberit AG ADR 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 Geberit AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Geberit AG ADR has no effect on the direction of Armstrong World i.e., Armstrong World and Geberit AG go up and down completely randomly.

Pair Corralation between Armstrong World and Geberit AG

Considering the 90-day investment horizon Armstrong World Industries is expected to generate 0.97 times more return on investment than Geberit AG. However, Armstrong World Industries is 1.03 times less risky than Geberit AG. It trades about 0.11 of its potential returns per unit of risk. Geberit AG ADR is currently generating about -0.16 per unit of risk. If you would invest  13,062  in Armstrong World Industries on September 25, 2024 and sell it today you would earn a total of  1,226  from holding Armstrong World Industries or generate 9.39% return on investment over 90 days.

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

Armstrong World Industries  vs.  Geberit AG ADR

Armstrong World Indu

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Armstrong World Industries are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Armstrong World may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Geberit AG ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Geberit AG ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Armstrong World and Geberit AG

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

The idea behind Armstrong World Industries and Geberit AG ADR 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.