Correlation Between Trex and AAON

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

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

Diversification Opportunities for Trex and AAON

0.88

Correlation Coefficient

Trex  AAON

Very poor diversification

The 3 months correlation between Trex and AAON is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Trex Company and AAON Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AAON Inc and Trex 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 Trex Company are associated (or correlated) with AAON. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AAON Inc has no effect on the direction of Trex i.e., Trex and AAON go up and down completely randomly.

Pair Corralation between Trex and AAON

Given the investment horizon of 90 days Trex Company is expected to generate 0.52 times more return on investment than AAON. However, Trex Company is 1.92 times less risky than AAON. It trades about -0.09 of its potential returns per unit of risk. AAON Inc is currently generating about -0.12 per unit of risk. If you would invest  7,030  in Trex Company on December 27, 2024 and sell it today you would lose (922.00) from holding Trex Company or give up 13.12% of portfolio value over 90 days.

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

Trex Company  vs.  AAON Inc

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.

AAON Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days AAON Inc 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 basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Trex and AAON

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

The idea behind Trex Company and AAON Inc 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.