Correlation Between AZZ Incorporated and ABM Industries

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

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

Diversification Opportunities for AZZ Incorporated and ABM Industries

0.57

Correlation Coefficient

AZZ Incorporated  ABM Industries

Very weak diversification

The 3 months correlation between AZZ and ABM is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding AZZ Incorporated and ABM Industries Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABM Industries and AZZ Incorporated 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 AZZ Incorporated are associated (or correlated) with ABM Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABM Industries has no effect on the direction of AZZ Incorporated i.e., AZZ Incorporated and ABM Industries go up and down completely randomly.

Pair Corralation between AZZ Incorporated and ABM Industries

Considering the 90-day investment horizon AZZ Incorporated is expected to generate 1.04 times more return on investment than ABM Industries. However, AZZ Incorporated is 1.04 times more volatile than ABM Industries Incorporated. It trades about 0.13 of its potential returns per unit of risk. ABM Industries Incorporated is currently generating about 0.04 per unit of risk. If you would invest  3,932  in AZZ Incorporated on August 31, 2024 and sell it today you would earn a total of  5,382  from holding AZZ Incorporated or generate 136.88% return on investment over 90 days.

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

AZZ Incorporated  vs.  ABM Industries Incorporated

AZZ Incorporated

Risk-Adjusted Performance

10 of 100

OK

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

ABM Industries

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ABM Industries Incorporated are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, ABM Industries is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with AZZ Incorporated and ABM Industries

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

The idea behind AZZ Incorporated and ABM Industries Incorporated 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .