Correlation Between Travis Perkins and Trex

Can any of the company-specific risk be diversified away by investing in both Travis Perkins and Trex 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 Trex 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 Trex Company, you can compare the effects of market volatilities on Travis Perkins and Trex 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 Trex. Check out your portfolio center. Please also check ongoing floating volatility patterns of Travis Perkins and Trex.

Diversification Opportunities for Travis Perkins and Trex

0.81

Correlation Coefficient

Travis Perkins  Trex

Very poor diversification

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

Pair Corralation between Travis Perkins and Trex

Assuming the 90 days horizon Travis Perkins PLC is expected to under-perform the Trex. In addition to that, Travis Perkins is 1.11 times more volatile than Trex Company. It trades about -0.1 of its total potential returns per unit of risk. Trex Company is currently generating about -0.09 per unit of volatility. If you would invest  7,096  in Trex Company on December 25, 2024 and sell it today you would lose (900.00) from holding Trex Company or give up 12.68% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	93.65%
Values	Daily Returns

Travis Perkins PLC  vs.  Trex Company

Travis Perkins PLC

Risk-Adjusted Performance

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 April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Trex Company

Risk-Adjusted Performance

Very Weak

Over the last 90 days Trex Company has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Travis Perkins and Trex

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

The idea behind Travis Perkins PLC and Trex 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.