Correlation Between Masco and Advanced Drainage

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

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

Diversification Opportunities for Masco and Advanced Drainage

0.81

Correlation Coefficient

Masco  Advanced Drainage

Very poor diversification

The 3 months correlation between Masco and Advanced is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Masco and Advanced Drainage Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advanced Drainage Systems and Masco 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 Masco are associated (or correlated) with Advanced Drainage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advanced Drainage Systems has no effect on the direction of Masco i.e., Masco and Advanced Drainage go up and down completely randomly.

Pair Corralation between Masco and Advanced Drainage

Considering the 90-day investment horizon Masco is expected to generate 0.48 times more return on investment than Advanced Drainage. However, Masco is 2.1 times less risky than Advanced Drainage. It trades about -0.15 of its potential returns per unit of risk. Advanced Drainage Systems is currently generating about -0.19 per unit of risk. If you would invest  8,165  in Masco on September 23, 2024 and sell it today you would lose (726.00) from holding Masco or give up 8.89% of portfolio value over 90 days.

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

Masco  vs.  Advanced Drainage Systems

Masco

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Masco has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Advanced Drainage Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Advanced Drainage Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's primary indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Masco and Advanced Drainage

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

The idea behind Masco and Advanced Drainage Systems 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.