Correlation Between Trex and Aspen Aerogels

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

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

Diversification Opportunities for Trex and Aspen Aerogels

-0.67

Correlation Coefficient

Trex  Aspen Aerogels

Excellent diversification

The 3 months correlation between Trex and Aspen is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Trex Company and Aspen Aerogels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aspen Aerogels 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 Aspen Aerogels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aspen Aerogels has no effect on the direction of Trex i.e., Trex and Aspen Aerogels go up and down completely randomly.

Pair Corralation between Trex and Aspen Aerogels

Given the investment horizon of 90 days Trex Company is expected to under-perform the Aspen Aerogels. But the stock apears to be less risky and, when comparing its historical volatility, Trex Company is 2.24 times less risky than Aspen Aerogels. The stock trades about -0.05 of its potential returns per unit of risk. The Aspen Aerogels is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,592  in Aspen Aerogels on October 9, 2024 and sell it today you would lose (262.00) from holding Aspen Aerogels or give up 16.46% of portfolio value over 90 days.

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

Trex Company  vs.  Aspen Aerogels

Trex Company

Risk-Adjusted Performance

2 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Trex Company are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical and fundamental indicators, Trex is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Aspen Aerogels

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aspen Aerogels 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 February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Trex and Aspen Aerogels

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

The idea behind Trex Company and Aspen Aerogels 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.