Correlation Between Louisiana Pacific and Trane Technologies

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

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

Diversification Opportunities for Louisiana Pacific and Trane Technologies

0.75

Correlation Coefficient

Louisiana Pacific  Trane Technologies

Poor diversification

The 3 months correlation between Louisiana and Trane is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Louisiana Pacific and Trane Technologies plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trane Technologies plc and Louisiana Pacific 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 Louisiana Pacific are associated (or correlated) with Trane Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trane Technologies plc has no effect on the direction of Louisiana Pacific i.e., Louisiana Pacific and Trane Technologies go up and down completely randomly.

Pair Corralation between Louisiana Pacific and Trane Technologies

Considering the 90-day investment horizon Louisiana Pacific is expected to under-perform the Trane Technologies. In addition to that, Louisiana Pacific is 1.84 times more volatile than Trane Technologies plc. It trades about -0.23 of its total potential returns per unit of risk. Trane Technologies plc is currently generating about -0.15 per unit of volatility. If you would invest  40,164  in Trane Technologies plc on October 10, 2024 and sell it today you would lose (1,554) from holding Trane Technologies plc or give up 3.87% of portfolio value over 90 days.

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

Louisiana Pacific  vs.  Trane Technologies plc

Louisiana Pacific

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Louisiana Pacific are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Louisiana Pacific is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Trane Technologies plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Trane Technologies plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Trane Technologies is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Louisiana Pacific and Trane Technologies

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

The idea behind Louisiana Pacific and Trane Technologies 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.