Correlation Between Trane Technologies and Azek

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

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

Diversification Opportunities for Trane Technologies and Azek

0.6

Correlation Coefficient

Trane Technologies  Azek

Poor diversification

The 3 months correlation between Trane and Azek is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Trane Technologies plc and Azek Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Azek Company and Trane Technologies 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 Trane Technologies 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 Trane Technologies i.e., Trane Technologies and Azek go up and down completely randomly.

Pair Corralation between Trane Technologies and Azek

Allowing for the 90-day total investment horizon Trane Technologies plc is expected to under-perform the Azek. But the stock apears to be less risky and, when comparing its historical volatility, Trane Technologies plc is 1.79 times less risky than Azek. The stock trades about -0.01 of its potential returns per unit of risk. The Azek Company is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  4,852  in Azek Company on December 27, 2024 and sell it today you would earn a total of  31.00  from holding Azek Company or generate 0.64% return on investment over 90 days.

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

Trane Technologies plc  vs.  Azek Company

Trane Technologies plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Trane Technologies plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Trane Technologies is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Azek Company

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Azek Company are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent technical and fundamental indicators, Azek is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Trane Technologies and Azek

The main advantage of trading using opposite Trane Technologies and Azek positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Trane Technologies 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 Trane Technologies 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.