Correlation Between Quanex Building and Advanced Drainage

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

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

Diversification Opportunities for Quanex Building and Advanced Drainage

0.61

Correlation Coefficient

Quanex Building  Advanced Drainage

Poor diversification

The 3 months correlation between Quanex and Advanced is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Quanex Building Products 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 Quanex Building 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 Quanex Building Products 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 Quanex Building i.e., Quanex Building and Advanced Drainage go up and down completely randomly.

Pair Corralation between Quanex Building and Advanced Drainage

Allowing for the 90-day total investment horizon Quanex Building Products is expected to generate 1.04 times more return on investment than Advanced Drainage. However, Quanex Building is 1.04 times more volatile than Advanced Drainage Systems. It trades about -0.13 of its potential returns per unit of risk. Advanced Drainage Systems is currently generating about -0.18 per unit of risk. If you would invest  2,838  in Quanex Building Products on October 11, 2024 and sell it today you would lose (569.00) from holding Quanex Building Products or give up 20.05% of portfolio value over 90 days.

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

Quanex Building Products  vs.  Advanced Drainage Systems

Quanex Building Products

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Quanex Building Products has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company 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 February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Quanex Building and Advanced Drainage

The main advantage of trading using opposite Quanex Building and Advanced Drainage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Quanex Building 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 Quanex Building Products 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..