Correlation Between Interface and Azek

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

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

Diversification Opportunities for Interface and Azek

0.72

Correlation Coefficient

Interface  Azek

Poor diversification

The 3 months correlation between Interface and Azek is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Interface and Azek Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Azek Company and Interface 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 Interface are associated (or correlated) with Azek. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Azek Company has no effect on the direction of Interface i.e., Interface and Azek go up and down completely randomly.

Pair Corralation between Interface and Azek

Given the investment horizon of 90 days Interface is expected to generate 2.58 times more return on investment than Azek. However, Interface is 2.58 times more volatile than Azek Company. It trades about 0.15 of its potential returns per unit of risk. Azek Company is currently generating about 0.22 per unit of risk. If you would invest  1,823  in Interface on August 31, 2024 and sell it today you would earn a total of  829.00  from holding Interface or generate 45.47% return on investment over 90 days.

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

Interface  vs.  Azek Company

Interface

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Interface are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak essential indicators, Interface exhibited solid returns over the last few months and may actually be approaching a breakup point.

Azek Company

Risk-Adjusted Performance

17 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Azek Company are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, Azek disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Interface and Azek

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

The idea behind Interface and Azek Company 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.