Correlation Between Trex and Interface

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

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

Diversification Opportunities for Trex and Interface

0.95

Correlation Coefficient

Trex  Interface

Almost no diversification

The 3 months correlation between Trex and Interface is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Trex Company and Interface in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Interface 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 Interface. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Interface has no effect on the direction of Trex i.e., Trex and Interface go up and down completely randomly.

Pair Corralation between Trex and Interface

Given the investment horizon of 90 days Trex Company is expected to generate 0.94 times more return on investment than Interface. However, Trex Company is 1.07 times less risky than Interface. It trades about -0.12 of its potential returns per unit of risk. Interface is currently generating about -0.13 per unit of risk. If you would invest  6,923  in Trex Company on December 29, 2024 and sell it today you would lose (1,192) from holding Trex Company or give up 17.22% of portfolio value over 90 days.

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

Trex Company  vs.  Interface

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.

Interface

Risk-Adjusted Performance

Very Weak

Over the last 90 days Interface 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 essential indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Trex and Interface

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

The idea behind Trex Company and Interface 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.