Correlation Between Lennox International and Aspen Aerogels

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

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

Diversification Opportunities for Lennox International and Aspen Aerogels

-0.68

Correlation Coefficient

Lennox International  Aspen Aerogels

Excellent diversification

The 3 months correlation between Lennox and Aspen is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Lennox International and Aspen Aerogels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aspen Aerogels 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 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 Lennox International i.e., Lennox International and Aspen Aerogels go up and down completely randomly.

Pair Corralation between Lennox International and Aspen Aerogels

Considering the 90-day investment horizon Lennox International is expected to generate 0.33 times more return on investment than Aspen Aerogels. However, Lennox International is 3.06 times less risky than Aspen Aerogels. It trades about 0.11 of its potential returns per unit of risk. Aspen Aerogels is currently generating about 0.03 per unit of risk. If you would invest  24,727  in Lennox International on October 3, 2024 and sell it today you would earn a total of  36,203  from holding Lennox International or generate 146.41% return on investment over 90 days.

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

Lennox International  vs.  Aspen Aerogels

Lennox International

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lennox International are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong forward indicators, Lennox International is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

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 Lennox International and Aspen Aerogels

The main advantage of trading using opposite Lennox International and Aspen Aerogels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lennox International 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 Lennox International 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.

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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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.