Correlation Between Azek and Aspen Aerogels

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

By analyzing existing cross correlation between Azek Company and Aspen Aerogels, you can compare the effects of market volatilities on Azek and Aspen Aerogels 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 Azek with a short position of Aspen Aerogels. Check out your portfolio center. Please also check ongoing floating volatility patterns of Azek and Aspen Aerogels.

Diversification Opportunities for Azek and Aspen Aerogels

-0.61

Correlation Coefficient

Azek  Aspen Aerogels

Excellent diversification

The 3 months correlation between Azek and Aspen is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Azek Company and Aspen Aerogels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aspen Aerogels and Azek 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 Azek Company are associated (or correlated) with Aspen Aerogels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aspen Aerogels has no effect on the direction of Azek i.e., Azek and Aspen Aerogels go up and down completely randomly.

Pair Corralation between Azek and Aspen Aerogels

Given the investment horizon of 90 days Azek Company is expected to generate 0.42 times more return on investment than Aspen Aerogels. However, Azek Company is 2.41 times less risky than Aspen Aerogels. It trades about 0.07 of its potential returns per unit of risk. Aspen Aerogels is currently generating about 0.03 per unit of risk. If you would invest  2,611  in Azek Company on October 24, 2024 and sell it today you would earn a total of  2,423  from holding Azek Company or generate 92.8% return on investment over 90 days.

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

Azek Company  vs.  Aspen Aerogels

Azek Company

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Azek Company are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, Azek disclosed solid returns over the last few months and may actually be approaching a breakup point.

Aspen Aerogels

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aspen Aerogels has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Azek and Aspen Aerogels

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

The idea behind Azek Company and Aspen Aerogels 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.