Correlation Between Lennox International and Carlisle Companies

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

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

Diversification Opportunities for Lennox International and Carlisle Companies

0.71

Correlation Coefficient

Lennox International  Carlisle Companies

Poor diversification

The 3 months correlation between Lennox and Carlisle is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Lennox International and Carlisle Companies Incorporate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carlisle Companies 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 Carlisle Companies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carlisle Companies has no effect on the direction of Lennox International i.e., Lennox International and Carlisle Companies go up and down completely randomly.

Pair Corralation between Lennox International and Carlisle Companies

Considering the 90-day investment horizon Lennox International is expected to under-perform the Carlisle Companies. In addition to that, Lennox International is 1.2 times more volatile than Carlisle Companies Incorporated. It trades about -0.06 of its total potential returns per unit of risk. Carlisle Companies Incorporated is currently generating about -0.05 per unit of volatility. If you would invest  36,764  in Carlisle Companies Incorporated on December 28, 2024 and sell it today you would lose (2,503) from holding Carlisle Companies Incorporated or give up 6.81% of portfolio value over 90 days.

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

Lennox International  vs.  Carlisle Companies Incorporate

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.

Carlisle Companies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Carlisle Companies Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Carlisle Companies is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Lennox International and Carlisle Companies

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

The idea behind Lennox International and Carlisle Companies 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..