Correlation Between Armstrong World and Owens Corning

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

Diversification Opportunities for Armstrong World and Owens Corning

0.81
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Armstrong and Owens is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Armstrong World Industries and Owens Corning in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Owens Corning 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 Owens Corning. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Owens Corning has no effect on the direction of Armstrong World i.e., Armstrong World and Owens Corning go up and down completely randomly.

Pair Corralation between Armstrong World and Owens Corning

Considering the 90-day investment horizon Armstrong World Industries is expected to generate 0.73 times more return on investment than Owens Corning. However, Armstrong World Industries is 1.37 times less risky than Owens Corning. It trades about 0.07 of its potential returns per unit of risk. Owens Corning is currently generating about 0.0 per unit of risk. If you would invest  13,360  in Armstrong World Industries on October 3, 2024 and sell it today you would earn a total of  773.00  from holding Armstrong World Industries or generate 5.79% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Armstrong World Industries  vs.  Owens Corning

 Performance 
       Timeline  
Armstrong World Indu 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Armstrong World Industries are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. 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.
Owens Corning 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Owens Corning has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Owens Corning is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Armstrong World and Owens Corning Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Armstrong World and Owens Corning

The main advantage of trading using opposite Armstrong World and Owens Corning positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Armstrong World position performs unexpectedly, Owens Corning 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 Owens Corning will offset losses from the drop in Owens Corning's long position.
The idea behind Armstrong World Industries and Owens Corning 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.

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