Correlation Between Acuity Brands and Preformed Line

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

By analyzing existing cross correlation between Acuity Brands and Preformed Line Products, you can compare the effects of market volatilities on Acuity Brands and Preformed Line 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 Acuity Brands with a short position of Preformed Line. Check out your portfolio center. Please also check ongoing floating volatility patterns of Acuity Brands and Preformed Line.

Diversification Opportunities for Acuity Brands and Preformed Line

0.82

Correlation Coefficient

Acuity Brands  Preformed Line

Very poor diversification

The 3 months correlation between Acuity and Preformed is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Acuity Brands and Preformed Line Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Preformed Line Products and Acuity Brands 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 Acuity Brands are associated (or correlated) with Preformed Line. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Preformed Line Products has no effect on the direction of Acuity Brands i.e., Acuity Brands and Preformed Line go up and down completely randomly.

Pair Corralation between Acuity Brands and Preformed Line

Considering the 90-day investment horizon Acuity Brands is expected to generate 0.79 times more return on investment than Preformed Line. However, Acuity Brands is 1.27 times less risky than Preformed Line. It trades about 0.26 of its potential returns per unit of risk. Preformed Line Products is currently generating about 0.13 per unit of risk. If you would invest  24,597  in Acuity Brands on September 2, 2024 and sell it today you would earn a total of  7,472  from holding Acuity Brands or generate 30.38% return on investment over 90 days.

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

Acuity Brands  vs.  Preformed Line Products

Acuity Brands

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Acuity Brands are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, Acuity Brands demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Preformed Line Products

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Preformed Line Products are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Preformed Line exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Acuity Brands and Preformed Line

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

The idea behind Acuity Brands and Preformed Line Products 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.