Correlation Between Lennox International and Arlo Technologies

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

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

Diversification Opportunities for Lennox International and Arlo Technologies

0.48

Correlation Coefficient

Lennox International  Arlo Technologies

Very weak diversification

The 3 months correlation between Lennox and Arlo is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Lennox International and Arlo Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arlo Technologies and Lennox International 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 Lennox International are associated (or correlated) with Arlo Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arlo Technologies has no effect on the direction of Lennox International i.e., Lennox International and Arlo Technologies go up and down completely randomly.

Pair Corralation between Lennox International and Arlo Technologies

Considering the 90-day investment horizon Lennox International is expected to under-perform the Arlo Technologies. But the stock apears to be less risky and, when comparing its historical volatility, Lennox International is 1.8 times less risky than Arlo Technologies. The stock trades about -0.05 of its potential returns per unit of risk. The Arlo Technologies is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,173  in Arlo Technologies on December 18, 2024 and sell it today you would lose (69.00) from holding Arlo Technologies or give up 5.88% of portfolio value over 90 days.

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

Lennox International  vs.  Arlo Technologies

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.

Arlo Technologies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Arlo Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy essential indicators, Arlo Technologies is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Lennox International and Arlo Technologies

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

The idea behind Lennox International and Arlo Technologies 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.