Correlation Between Salesforce and Lennox International

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

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

Diversification Opportunities for Salesforce and Lennox International

0.32

Correlation Coefficient

Salesforce  Lennox International

Weak diversification

The 3 months correlation between Salesforce and Lennox is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Salesforce and Lennox International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lennox International and Salesforce 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 Salesforce are associated (or correlated) with Lennox International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lennox International has no effect on the direction of Salesforce i.e., Salesforce and Lennox International go up and down completely randomly.

Pair Corralation between Salesforce and Lennox International

Considering the 90-day investment horizon Salesforce is expected to generate 1.11 times more return on investment than Lennox International. However, Salesforce is 1.11 times more volatile than Lennox International. It trades about -0.05 of its potential returns per unit of risk. Lennox International is currently generating about -0.05 per unit of risk. If you would invest  32,961  in Salesforce on November 28, 2024 and sell it today you would lose (2,373) from holding Salesforce or give up 7.2% of portfolio value over 90 days.

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

Salesforce  vs.  Lennox International

Salesforce

Risk-Adjusted Performance

Very Weak

Over the last 90 days Salesforce has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Lennox International

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lennox International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's forward indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Salesforce and Lennox International

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

The idea behind Salesforce and Lennox International 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.