Correlation Between Lennox International and Kingspan Group

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

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

Diversification Opportunities for Lennox International and Kingspan Group

-0.51

Correlation Coefficient

Lennox International  Kingspan Group

Excellent diversification

The 3 months correlation between Lennox and Kingspan is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Lennox International and Kingspan Group PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kingspan Group PLC 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 Kingspan Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kingspan Group PLC has no effect on the direction of Lennox International i.e., Lennox International and Kingspan Group go up and down completely randomly.

Pair Corralation between Lennox International and Kingspan Group

Considering the 90-day investment horizon Lennox International is expected to under-perform the Kingspan Group. But the stock apears to be less risky and, when comparing its historical volatility, Lennox International is 1.25 times less risky than Kingspan Group. The stock trades about -0.03 of its potential returns per unit of risk. The Kingspan Group PLC is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  7,275  in Kingspan Group PLC on December 29, 2024 and sell it today you would earn a total of  1,122  from holding Kingspan Group PLC or generate 15.42% return on investment over 90 days.

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

Lennox International  vs.  Kingspan Group PLC

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 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.

Kingspan Group PLC

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kingspan Group PLC are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Kingspan Group showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lennox International and Kingspan Group

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

The idea behind Lennox International and Kingspan Group PLC 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.