Correlation Between Travis Perkins and Azek

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

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

Diversification Opportunities for Travis Perkins and Azek

-0.53

Correlation Coefficient

Travis Perkins  Azek

Excellent diversification

The 3 months correlation between Travis and Azek is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Travis Perkins PLC and Azek Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Azek Company and Travis Perkins 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 Travis Perkins PLC 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 Travis Perkins i.e., Travis Perkins and Azek go up and down completely randomly.

Pair Corralation between Travis Perkins and Azek

Assuming the 90 days horizon Travis Perkins PLC is expected to under-perform the Azek. In addition to that, Travis Perkins is 1.41 times more volatile than Azek Company. It trades about -0.11 of its total potential returns per unit of risk. Azek Company is currently generating about 0.24 per unit of volatility. If you would invest  4,134  in Azek Company on September 3, 2024 and sell it today you would earn a total of  1,178  from holding Azek Company or generate 28.5% return on investment over 90 days.

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

Travis Perkins PLC  vs.  Azek Company

Travis Perkins PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Travis Perkins PLC 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 forward-looking signals remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Azek Company

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Azek Company are ranked lower than 18 (%) 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 Travis Perkins and Azek

The main advantage of trading using opposite Travis Perkins and Azek positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Travis Perkins 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 Travis Perkins PLC 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.